AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333- o
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BRADLEY PHARMACEUTICALS, INC.
(Name of Small Business Issuer in Its Charter)
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NEW JERSEY 2834 22-2581418
(State Or (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation or Classification Code No.)
Organization) Number)
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383 ROUTE 46 WEST
FAIRFIELD, NJ 07004
(201) 882-1505
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
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DANIEL GLASSMAN
CHAIRMAN OF THE BOARD
BRADLEY PHARMACEUTICALS, INC.
383 ROUTE 46 WEST
FAIRFIELD, NJ 07004
(201) 882-1505
(Name, Address and Telephone Number of Agent For Service)
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COPIES TO:
ALAN S. GOLDSTEIN
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 603-2000
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.[ ]
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CALCULATION OF REGISTRATION FEE
========================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH DOLLAR OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO PRICE PER OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED UNIT(1) PRICE(1) FEE (1)
-------------------------------------------------------------------------
Class A Common 1,450,000 $2.02 $2,929,000 $1,010.00
Stock, no par value shares
per share
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Total $2,929,000 $1,010.00
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(1) Determined pursuant to Rule 457(c) promulgated under the
Securities Act of 1933, as amended, based upon the average
of the high and low prices for shares of Class A Common
Stock on October 8, 1997, as reported by the NASDAQ Stock
Market.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
PROSPECTUS
1,450,000 SHARES OF CLASS A COMMON STOCK
BRADLEY PHARMACEUTICALS, INC.
This Prospectus relates to an aggregate of 1,450,000 shares
(the "Shares") of Class A Common Stock, without par value (the
"Common Stock"), of Bradley Pharmaceuticals, Inc., a New Jersey
corporation (the "Company"), proposed to be sold from time to
time by Berlex Laboratories, Inc., a Delaware corporation (the
"Selling Stockholder"). The Shares were originally acquired by
the Selling Stockholder in private transactions negotiated with
the Company during December 1996 and September 1997.
Shares of the Company's Common Stock are traded on the Nasdaq
National Market under the symbol "BPRX." On October 10, 1997,
the closing price per share of the Company's Common Stock on the
Nasdaq National Market was $2.13 per share. See "Price Range of
Common Stock."
It is anticipated that the Selling Stockholder will offer the
Shares for sale at prevailing prices on the Nasdaq National
Market on the date or dates of sale. The Selling Stockholder
also may make private sales of the Shares directly or through
broker-dealers at prevailing market prices or at prices otherwise
negotiated. None of the proceeds from the sale of the Shares
will be received by the Company.
All costs, expenses and fees incurred in connection with the
registration of the Shares are being borne by the Company. All
brokerage commissions and other selling expenses incurred by the
Selling Stockholder will be borne solely by the Selling
Stockholder. See "Use of Proceeds," "Selling Stockholder" and
"Plan of Distribution."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES OFFERED
HEREBY, SEE "RISK FACTORS" BEGINNING AT PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is o, 1997
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, soliciation or
sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files
reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements and other
information filed by the Company can be inspected and copied at
the principal office of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should
be available at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Common Stock of the
Company is quoted on the Nasdaq National Market, and reports,
proxy and information statements and other information concerning
the Company also may be inspected and copied at the offices of
the Nasdaq National Market, located at 1735 K Street, N.W.,
Washington, D.C. 20006. The Company also furnishes its
stockholders with annual reports containing audited financial
statements and such other reports as the Company deems
appropriate or as may be required by law.
This Prospectus constitutes a part of the Registration
Statement on Form SB-2 (the "Registration Statement") filed by
the Company with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not
contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain items of which have
been omitted in this Prospectus in accordance with the rules and
regulations of the Commission. For further information with
respect to the Company and the offering of the Shares, reference
is hereby made to the Registration Statement and the exhibits
thereto. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in
its entirety by such reference. The Registration Statement and
the exhibits thereto may be inspected at, and copies thereof may
be obtained at prescribed rates from, the public
reference facilities of the Commission set forth above.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 WITH RESPECT TO THE RESULTS OF OPERATIONS AND
BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED,
PROJECTED, FORECAST, ESTIMATED OR BUDGETED IN SUCH FORWARD
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (i) FAILURE OF THE COMPANY TO CARRY OUT
SUCCESSFULLY ITS BUSINESS PLAN; (ii) FAILURE OF THE COMPANY TO
SECURE ADDITIONAL FINANCING ON FAVORABLE TERMS, IF NECESSARY, TO
SUPPORT OPERATIONS; (iii) LOSS OF KEY EXECUTIVES; (iv) HEIGHTENED
COMPETITION; (v) GENERAL ECONOMIC AND BUSINESS CONDITIONS WHICH
ARE LESS FAVORABLE THAN EXPECTED; AND (vi) UNANTICIPATED CHANGES
IN INDUSTRY TRENDS. SEE "RISK FACTORS," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
AND "BUSINESS."
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<PAGE>
PROSPECTUS SUMMARY
The follow summary is qualified in its entirety by reference
to, and should be read in conjunction with, the more detailed
information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its
entirety.
THE COMPANY
Bradley Pharmaceuticals, Inc. (the "Company") manufactures
and markets over-the-counter and prescription pharmaceutical and
health related products. The Company's product line currently
includes dermatological brands (marketed by the Company's wholly-
owned subsidiary, Doak Dermatologics, Inc. ("Doak")) and
nutritional, respiratory, personal hygiene and internal medicine
brands (marketed by the Company's Kenwood Laboratories division).
Substantially all of the Company's dermatological product lines
are manufactured and packaged at Doak's Westbury, New York
facility. The Company's other product lines are manufactured and
supplied by independent contractors under the Company's quality
control standards. The Company's products are then marketed,
either directly or through intermediaries, to wholesalers, retail
chains and healthcare institutions throughout the United States
and to distributors in selected international markets.
The Company's growth strategy has been to make acquisitions
of established products from major pharmaceutical organizations
which the Company believes require intensified marketing and
promotional attention. The Company believes that significant
growth opportunities exist in this market niche as a result of
the divestiture by major pharmaceutical companies of certain
established product lines that have become less profitable in
relation to their other products. As a result, the Company has
acquired, and intends to continue to acquire, rights to
manufacture and market pharmaceutical and health related products
which are effective and for which a demonstrated market exists,
but which are not actively promoted and where the surrounding
competitive environment does not necessarily include major
pharmaceutical companies.
The Company's ability to make further product acquisitions
will depend, among other things, on the availability of
appropriate acquisition opportunities and financing and the
Company's ability to consummate acquisitions on favorable terms.
Because there can be no assurance that the Company will be able
to consummate in a timely manner attractive acquisitions on
favorable terms, management has focused, and will continue to
focus, on developing and extending the Company's existing
acquired product lines.
The Company's most significant acquisition to date was in
December 1993, when the DECONAMINE cold/flu/allergy product line
was purchased from Berlex Laboratories, Inc., a subsidiary of
Schering AG ("Berlex"). During September 1997, the Company
satisfied its remaining payment obligations due to Berlex arising
out of the Company's 1993 acquisition of the DECONAMINE product
line.
The Company was incorporated under the laws of the State of
New Jersey in January 1985. The Company's principal executive
offices are located at 383 Route 46 West, Fairfield, New Jersey
07004, and its telephone number is (201) 882-1505.
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<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary historical audited
financial information and unaudited financial information for the
Company at and for the dates indicated. The summary historical
financial data of the Company (i) as of and for each of the two
fiscal years ended December 31, 1996 have been derived from the
audited financial statements of the Company and (ii) as of and
for the six months ended June 30, 1996 and 1997 have been derived
from the interim unaudited financial statements of the Company
which, in the opinion of management, include all adjustments
necessary for a fair presentation of the Company's results of
operations and financial condition. The historical financial
information for the six months ended June 30, 1997 is not
necessarily indicative of future results of operations.
STATEMENT OF OPERATIONS DATA:
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------------- --------------------------
1996 1995 1997 1996
---- ---- ---- ----
Net Sales . . . $12,769,266 $10,621,061 $7,373,970 $6,908,499
Gross Profit . $ 9,457,953 $ 6,660,724 $5,566,594 $5,227,459
Total Operating
Expenses . . $ 7,709,446 $15,077,989 $5,000,474 $4,912,935
Total Income
(Loss) . . . $ 1,598,507 $(6,921,241) $ 342,370 $ 314,524
Net Income
(Loss)
Per Share . . $0.22 $(0.94) $0.04 $0.04
Weighted Average
Number
of Shares
Outstanding . 7,175,348 7,348,975 8,098,251 7,183,354
BALANCE SHEET DATA:
AT JUNE 30,
AT DECEMBER 31, (UNAUDITED)
---------------------------- ---------------------------
1996 1995 1997 1996
---- ---- ---- ----
Working Capital
(Deficit) . . $ (2,828,800) $ (4,928,064) $ (2,039,938) $ (4,232,850)
Total Assets . $ 20,703,169 $ 26,899,949 $ 19,606,978 $ 23,680,483
Total Long Term
Debt . . . . $ 530,964 $ 4,491,050 $ 326,292 $ 4,901,281
Total
Liabilities . $ 8,887,969 $ 18,033,131 $ 7,527,823 $ 14,349,139
Retained
Earnings
(Accumulated
Deficit) . . $ (3,000,488) $ (4,598,995) $ (2,658,117) $ (4,284,469)
Stockholders'
Equity . . . $ 11,815,200 $ 8,866,818 $ 12,079,155 $ 9,331,344
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<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk, including, but not necessarily limited to, the risk
factors described below. Each prospective investor should carefully
consider the following risk factors inherent in and affecting the business
of the Company before making an investment decision.
1. Dependence on DECONAMINE(R) Product Line Sales; Uncertainty
Regarding Future Marketing of DECONAMINE(R). For the fiscal year ended
December 31, 1996 ("Fiscal 1996"), and the six months ended June 30, 1997,
sales of the Company's DECONAMINE(R) product line accounted for
approximately 51% and 45%, respectively, of the Company's Fiscal 1996 and
six months ended June 30, 1997 net sales. As such, the Company's
operations can be deemed to be dependent on the Company's ability to market
and sell its DECONAMINE(R) product line. There can be no assurance,
however, that the Company can continue to successfully promote and market
its DECONAMINE(R) product line.
All over-the-counter cough/cold products are regulated by the United
States Food and Drug Administration (the "FDA") pursuant to monographs
which specify permissible active ingredients, labeling and indications and
also determine when specific drug products, such as the DECONAMINE(R) line
of products, change from prescription to over-the-counter status (i.e., a
status not requiring a prescription for the product purchase). The
Company's DECONAMINE(R) product line, which currently has prescription
status, falls under these monographs. Once a final monograph is issued by
the FDA with respect to a product, the product historically can remain as a
prescription product for up to one additional year. The Company
anticipates that final monographs for the Company's DECONAMINE(R) product
line, thereby converting the product line from prescription status to over-
the-counter status, are expected to be issued by the FDA after April 1998.
The Company currently intends to continue to market and distribute its
DECONAMINE(R) line of products as prescription products for as long as it
may lawfully continue to do so. The Company is exploring its marketing and
distribution strategy relating to its DECONAMINE(R) product line after
final monographs covering these products are issued, and, as such, it is
not currently possible for the Company to predict how its operations and
financial condition will be affected, or whether it will have resources
sufficient to aggressively market the DECONAMINE(R) line of products, if,
and when, this product line is converted from prescription status to over-
the-counter status.
Further, the Company's DECONAMINE(R) SR product requires the Company
to file an Abbreviated New Drug Application (an "ANDA") with the FDA to be
in compliance with the regulation that all controlled release products,
like DECONAMINE(R) SR, be the subject of an ANDA. The cost of this ANDA
is approximately $900,000. The Company has entered into an agreement
with Phoenix International to perform the clinical studies required for
the issuance of the ANDA. As of the date of this Prospectus, the Company
had paid approximately $180,000 with respect to this project. This
project is expected to be completed and submitted to the FDA during 1998.
Completion of this research and development project is subject, however,
to the Company's either generating sufficient cash flow from operations
to fund the same or obtaining requisite financing from outside sources,
of which there can be no assurance. Therefore, the Company cannot at
this time reasonably anticipate the timing of the expenditure of funds
necessary for completing the ANDA with respect to its DECONAMINE(R) SR
product. The inability of the Company to further develop and/or file the
necessary ANDA for DECONAMINE(R) SR would have a material adverse effect
on the Company's business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" and "Business."
2. Reliance on Manufacturers and Suppliers. Prior to 1994, the
Company did not own or operate any manufacturing or production facilities.
Rather, the Company's products were manufactured and supplied by
independent companies, many of which also manufactured and supplied
products for many of the Company's competitors. While the Company
currently manufacturers and assembles its Doak line of products, which
products accounted for approximately 32% of the Company's Fiscal 1996 net
sales, the remainder of the Company's products, including the DECONAMINE(R)
line of products, continue to be manufactured and supplied by independent
companies. While the Company has entered into a renewable three year
contract with Upsher Smith for the manufacture of LUBRIN , the Company does
not generally have any licensing or other supply agreements with its
manufacturers or suppliers for its products and is currently dependent upon
a limited number of potential suppliers. Any of these suppliers could
terminate their relationship with the Company at any time. The Company has
from time to time experienced delays in shipments from some of its vendors.
Although management believes it can obtain replacement manufacturing
arrangements, the absence of such agreements between the Company and its
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<PAGE>
present suppliers may, in certain instances, have an adverse effect upon
the Company's sales and marketing efforts. To date, the Company has not
encountered any problems, or experienced delays, in locating alternative
manufacturers and suppliers. Further, all of the Company's pharmaceutical
suppliers must be authorized under FDA regulations or specific approvals
and must manufacture the Company's products in authorized facilities
pursuant to federally regulated current good manufacturing practices
("CGMP'S"). There can be no assurance that in the event the Company were
to experience difficulties with its present manufacturers or suppliers, the
Company would not experience delays in obtaining products which could
materially adversely affect its operations. See "Business."
3. Pharmaceutical Manufacturer. All pharmaceutical manufacturers,
including the Company, are subject to extensive federal and state
regulations, and the Company cannot predict the extent to which it may be
affected in the future by legislative and other regulatory developments
concerning its products. In the United States, drug products manufactured
or sold by the Company are subject to regulation by the FDA, principally
under the Federal Food, Drug and Cosmetic Act, as well as by other federal
and state agencies. The FDA regulates all aspects of the testing,
manufacture, safety, labeling, storage, record keeping, advertising and
promotion of new and old drugs, including the monitoring of compliance with
cGMP'S. Non-compliance with applicable requirements can result in fines
and other sanctions, including the initiation of product seizures,
injunction actions and criminal prosecutions based on practices that
violate statutory requirements. In addition, administrative remedies can
involve voluntary recall of products, as well as the withdrawal of approval
of products in accordance with due process procedures. Similar regulations
exist in most foreign countries in which the Company's products are
distributed or sold. The restriction or prohibition of sales of products
marketed by the Company could also materially and adversely affect the
Company's business.
As a pharmaceutical manufacturer, the Company may be subject to
periodic inspections of its manufacturing facilities by the FDA. cGMP
violations or good record keeping deficiencies uncovered by the FDA in such
inspections could have an adverse affect on the Company's operations. The
Company's manufacturing facility has been inspected by the FDA, which found
the site to then be in compliance with cGMP'S. There can be no assurance
that the Company's manufacturing facility will, in the future, continue to
be operated in compliance with cGMP'S. See "Business - Manufacturers and
Suppliers" and "Marketing and Sales."
4. Past Due Nature of Accounts Payable. The Company, at September
30, 1997, had approximately $700,000 of accounts payable that were more
than 90 days past due. None of these accounts payable, however, was in
excess of $100,000. Moreover, the Company believes that it has meritorious
defenses and legitimate rights of offset with respect to a portion of these
accounts payable, and has received indications from creditors that such
creditors are willing to refrain from taking enforcement action against the
Company while the Company attempts to negotiate or restructure its
financial obligations to them. Notwithstanding the foregoing, the Company
presently lacks the cash resources or borrowing base necessary to satisfy
in full these past due accounts payable if it were required to satisfy them
immediately. There can be no assurance that the Company's creditors will
continue to refrain from commencing or otherwise initiating enforcement or
other collection actions against the Company with respect to the Company's
past due accounts payable. The initiation of any such enforcement or
collection actions could have a material adverse affect on the Company's
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
5. Industry Consolidation Among Wholesalers. The pharmaceutical
distribution industry has recently experienced a significant consolidation
among wholesalers. As a consequence, channels for wholesale pharmaceutical
distribution are less abundant than historically available. As a
consequence, the Company is dependent on a fewer number of wholesalers to
distribute its products and the Company's ability to negotiate price terms
with such wholesalers has been eroded. While management of the Company
believes that this consolidation among wholesalers will ultimately reduce
the Company's distribution costs, the Company's inability to aggressively
negotiate price terms with wholesalers, over the long term, could inhibit
the Company's efforts to achieve targeted profit margins. Notwithstanding
the Company's ability to by-pass the wholesale distribution network by
distributing its products to end-users directly, there can be no assurance
that the continued or future consolidation among pharmaceutical wholesalers
will not materially adversely affect the Company's operations or financial
condition. See "Business."
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<PAGE>
6. Expansion Risks; Capital Requirements; Pledge of Substantially All
Assets. The Company's principal strategy is to continue to expand its
business through the acquisition of businesses and new products, as well as
product line extensions, and increased marketing, distribution,
manufacturing and assembling activities. The Company seeks products that
it believes can be profitable under the Company's management and in which
there are no adverse FDA rulings. To date, none of the Company's products
have been subject to any adverse FDA ruling and the Company has no reason
to believe that any of its current products will become the subject of any
adverse FDA ruling. There is no guarantee that sales of newly acquired
products will be profitable to the Company or that such products will meet
anticipated sales levels. Moreover, while the Company anticipates making
future acquisitions in accordance with its strategic plan, no assurance can
be given that the Company will consummate any future acquisitions or that
the Company will be able to achieve the same rates of return and historical
sales levels of any product acquired. In addition, expansion of the
Company's marketing and distribution activities will require the Company to
attract and retain additional qualified personnel. Although the Company,
to date, has attracted and retained qualified personnel, there is no
assurance that the Company will be able to continue to recruit or retain
personnel of the requisite caliber or in adequate numbers to enable it to
implement its business strategy. Moreover, no assurance can be given that
the Company will be able to successfully integrate any newly acquired
product or business into the Company's operations. The failure to do so
could have a material adverse effect on the financial condition and
operations of the Company.
The Company's expansion strategy presupposes the Company's ability to
finance new product acquisitions from existing working capital, positive
cash flow from operations and/or new borrowings. While the Company is not
currently prohibited from other borrowings of money, its ability to grant
liens upon, and security interests in, its assets is restricted by the
terms of the Company's current credit facility with The CIT Group ("CIT"),
in whose favor the Company has granted a lien on, and security interest in,
substantially all of the Company's assets to secure the Company's
obligations to CIT under the CIT credit facility. The existence of the
encumbrances covering the Company's assets granted in favor of CIT could
adversely affect the Company's ability to secure new or asset-based
borrowings if necessary. Accordingly, there can be no assurance that the
Company will be able to borrow, on commercially reasonable terms or
otherwise, new funds in the future, if necessary, to finance further
acquisitions or support operations. The Company currently has not
identified any specific potential acquisitions and no assurance can be
given that additional capital will be available to the Company in the
future, if needed, to finance further acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Business."
7. Explanatory Paragraph in Report of Independent Public Accountants.
The Company's independent certified public accountants have included an
explanatory paragraph in their report on the Company's Fiscal 1996
financial statements stating that certain factors cause a substantial doubt
about the ability of the Company to continue as a going concern. See
Financial Statements.
8. Competition. The business of distributing pharmaceutical and
health related products is highly competitive. The Company competes
primarily against established pharmaceutical and consumer product companies
which currently market products that are equivalent or functionally similar
to those the Company markets. The Company focuses its marketing efforts on
products, the major competition for which are products sold by companies
other than major firms in the pharmaceutical industry, and seeks to compete
based on targeted marketing and promotional programs and lower prices.
There can be no assurance that the Company will be successful in this
regard. Moreover, there can be no assurance that major pharmaceutical
companies will not develop and market new and innovative products
competitive with any of the Company's products. Further, since most of the
Company's products are not protected by issued patents, products similar in
composition and intended use could be manufactured and distributed by the
Company's competitors. Most of the Company's competitors possess
substantially greater financial, technical and other resources that the
Company. See "Business-Competition."
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<PAGE>
9. Product Liability. Pharmaceutical and health related products,
such as those marketed by the Company, may carry certain health risks and,
consequently, the Company may be exposed to potential product liability
claims by consumers. The Company maintains a product liability insurance
policy providing direct coverage in the aggregate amount of $3,000,000 and
is an additional insured under its manufacturers' policies. The Company's
present insurance may not be adequate in the event of an adverse judgment
against the Company. In the event that any product liability claim is not
fully funded by applicable insurance, or if the Company is unable to
recover damages from the manufacturer of the product that may have caused
such injury, the Company will be required to pay such claims from its own
funds. Any such payment could have a material adverse affect on the
Company's financial condition. In addition, there is no assurance that the
Company will be able to maintain its liability insurance in effect in the
future at reasonable premium rates, if at all. See "Business-Product
Liability Insurance."
10. Government Regulation. The Company's products are subject to
rigorous regulation by the FDA and by state authorities, primarily under
the Federal Food, Drug and Cosmetic Act and the regulations promulgated
thereunder (along with comparable state laws). These laws regulate the
manufacture, shipping, storage and sale of such products, including cGMP'S,
and the storage and use of samples. The FDA, Federal Trade Commission and
state authorities also regulate the advertising of prescription and over-
the-counter products. The Company has received assurance from its
suppliers that all of the products meet the applicable regulatory standards
in all substantial respects. There is, however, no assurance that the
Company's current or future suppliers will meet all applicable standards.
A failure to meet such standards could substantially adversely impact the
Company's business. Adverse governmental enforcement efforts or future
adverse regulatory changes could also result in a cessation of sales of a
product, in penalties, adverse publicity and/or recalls or criminal
sanctions.
Certain of the Company's pharmaceutical products are sold over-the-
counter (i.e., without a prescription). These products are subject to FDA
regulations known as monographs, which specify, among other things,
permissible active ingredients, labeling and indications. No assurance can
be given that future FDA enforcement or regulatory decisions or changes to
monographs will not hamper the Company's marketing efforts at considerable
cost to the Company or render the Company's products unlawful for
commercial sale, causing the Company to withdraw its products from the
marketplace or spend substantial funds reformulating the products. See
"Business-Government Regulation."
11. Chargebacks and Rebates. Chargebacks and rebates are the
difference between the prices at which the Company sells its products
(principally DECONAMINE(R)SR) to wholesalers and the sales price ultimately
paid by the end-user (often governmental agencies and managed care buying
groups) pursuant to fixed price contracts. The Company records an estimate
of the amount either to be charged back to the Company or rebated to the
end- user at the time of sale to the wholesaler. Over recent years, the
managed care system of chargebacks and rebates gained greater acceptance by
the pharmaceutical industry in general. Managed care organizations
increasingly began using these sales price adjustments (chargebacks and
rebates) as a method to reduce overall costs in drug procurement. Levels
of chargebacks and rebates have increased momentum and have caused a
greater need for more sophisticated tracking and data gathering to confirm
sales at contract prices to end-users with respect to related Company sales
to wholesalers. The Company believes it has implemented new procedures,
systems and policies to more closely monitor the managed care and
government sales areas of its business, including higher reserves based
upon more conservative estimates. Management records an accrual for
chargebacks and rebates based upon factors including current contract
prices, historical chargeback rates and actual chargebacks claimed. The
amount of actual chargebacks claimed could, however, differ (either higher
or lower) in the near term from the amounts accrued by the Company and
could materially impact the Company's financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12. Control by Insiders. The beneficial holdings of the executive
officers and directors of the Company include 1,648,747 shares of Class A
Common Stock and 402,821 shares of Class B Common Stock, without par value
(the "Class B Common Stock"), which Class B Common Stock possesses five
votes per share (other than with respect to the election of directors). At
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all times while there are at least 325,000 shares of Class B Common Stock
issued and outstanding, holders of the Class B Common Stock, voting as a
separate class, have the right to elect a majority of the Board of
Directors of the Company. Accordingly, the executive officers and
directors of the Company currently have the ability, and it is anticipated
that in the future they will continue to have the ability, to elect a
majority of the Company's directors and thereby otherwise authorize certain
corporate transactions without concurrence of the "outside" public
stockholders of the Company. See "Principal Stockholders."
13. Dependence on Key Personnel. The Company's day to day operations
are managed by its President, Chief Executive Officer and Chairman, Daniel
Glassman. Mr. Glassman does not currently have an employment agreement
with the Company. The loss of the services of Mr. Glassman would
materially adversely affect the conduct of the Company's business. See
"Management."
14. Outstanding Warrants and Options; Shares Eligible for Future
Sale. There are currently outstanding a substantial number of options and
warrants entitling the holders thereof to purchase shares of Class A Common
Stock. In addition, the holders of shares of Class B Common Stock have the
unilateral right, exercisable at any time, to convert their shares of Class
B Common Stock into shares of Class A Common Stock. If all outstanding
warrants and options were exercised and all shares of Class B Common Stock
converted into shares of Class A Common Stock, approximately an additional
3,091,397 shares of Class A Common Stock would be required to be issued and
be outstanding. The sale, or availability for sale, of such substantial
amounts of additional shares of Class A Common Stock in the public
marketplace could adversely affect the prevailing market price of the
Company's securities and otherwise impair the Company's ability to raise
additional capital through the sale of its equity securities. See
"Description of Securities."
15. Dividends Prohibited and Otherwise Unlikely. The Company's
credit facility with CIT currently prohibits the payment by the Company of
any cash dividends at any time while amounts remain outstanding under the
CIT credit facility. Moreover, and without giving effect to the terms of
the CIT credit facility, the Company currently does not intend to declare
or pay cash dividends in the foreseeable future. Earnings, if any, are
expected to be retained to finance and expand the Company's business.
16. Environmental Matters. On April 8, 1994, the Company was
apprised by the New York State Department of Environmental Conservation
("NYSDEC") that Doak's current leased manufacturing facility located on
adjoining parcels at 67 Sylvester Street and 62 Kinkel Street, Westbury,
New York, is located in the New Cassel Industrial Area, which had been
designated by the NYSDEC on the Registry of Inactive Hazardous Waste Sites
(the "Registry"). The real property on which Doak's current manufacturing
facility is situated is owned by and leased to the Company by Dermkraft,
Inc., an entity owned by the former controlling stockholders and officers
of Doak.
On February 7, 1995, the Company was apprised by the NYSDEC that the
current manufacturing facility will be excluded from the Registry. By
letter dated April 21, 1995, the NYSDEC notified the Company that it
intended to investigate the Company's current manufacturing facility to
determine if hazardous substances had previously been deposited on that
property. By letter dated October 24, 1995, NYSDEC notified Dermkraft,
Inc. that the Company's current manufacturing facility is included in or
near an inactive hazardous waste site described as "Kinkel and Sylvester
Streets" and that NYSDEC intends to conduct a Preliminary Site Assessment
to study the site and immediate vicinity. The Company has been advised
that NYSDEC has made a preliminary determination to include the 62 Kinkel
Street portion of the current manufacturing facility on the Registry and
that the 67 Sylvester Street portion of the facility will not be included,
but those determinations could change before they are finalized.
Thereafter, by letter dated May 3, 1996 and addressed to Dermkraft, Inc.,
the NYSDEC notified Dermkraft that the site at 62 Kinkel Street has been
listed on the Registry due to the presence of trichloroethylene ("TCE") in
soils and groundwater due to the use of TCE by LAKA Tools and Stamping and
LAKA Industries, a former tenant from 1971 through 1984. The NYSDEC
documents refer to Doak as the current tenant but do not refer to any
activities of Doak or the Company as a basis for the listing in the
Registry. The Company cannot at this time determine whether the cost
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associated with the investigation and required remediation, if any, of the
current manufacturing facility will be material. With respect to the
former manufacturing facility on Magnolia Avenue, which remains designated
by the NYSDEC as part of the Registry, management believes, but no
assurance can be given, that Doak will not be obligated to contribute to
any remediation costs, if any are required. See "Business - Environmental
Matters."
17. Anti-takeover Provisions; Class B Common Stock; Authorization of
Preferred Stock. The Company's charter authorizes the issuance of up to
2,000,000 shares of preferred stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board
of Directors. The authorization of such preferred stock empowers the Board
of Directors, without further stockholder approval, to issue preferred
shares with dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. In the event of issuance, such preferred stock
could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change of control of the Company.
To date, no shares of preferred stock have been issued. In addition, the
Company is and will continue to be, subject to the anti-takeover provisions
of the New Jersey Corporation Law, which could have the effect of delaying
or preventing a change of control of the Company.
The Company's charter also provides that at all times while there are
at least 325,000 shares of Class B Common Stock issued and outstanding, the
holders of such shares of Class B Common Stock shall have the right, voting
as a separate class, to elect a majority of the Board of Directors of the
Company. As of the date of this Prospectus, 431,552 shares of Class B
Common Stock are issued and outstanding, 311,736 shares of which are
beneficially owned by Daniel Glassman, the Company's President, Chief
Executive Officer and Chairman of the Board. As such, Mr. Glassman may be
deemed to effectively control the Company and the existence of these shares
of Class B Common Stock could have the effect of preventing a change of
control of the Company. See "Principal Stockholders" and "Description of
Securities."
18. Fluctuations in Stock Price. The trading price of the Company's
Class A Common Stock has fluctuated. The price at which shares of Class A
Common Stock trade is determined in the marketplace and may be influenced
by many factors, including the performance of, and investor expectations
for, the Company, the trading volume in the Class A Common Stock and
general economic and market conditions, including pending or newly enacted
legislation or regulations impacting the Company's business. This
volatility has also substantially affected the market prices of securities
issued by many companies for reasons unrelated to their operating
performance. These broad market fluctuations may adversely affect the
market price of the Company's Class A Common Stock. Further, the
registration of the shares of Class A Common Stock included in this
Prospectus could create additional selling pressures on the trading market
for outstanding shares of Class A Common Stock. There can be no assurance
as to the price at which the shares of Class A Common Stock of the Company
will trade in the future. See "Price Range of Class A Common Stock."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Stockholder of the Shares being registered in the Registration Statement of
which this Prospectus forms a part.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
shares of Class A Common Stock and does not anticipate paying any such cash
dividends in the foreseeable future. The Company currently intends to
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retain any earnings for use in the operation and expansion of its business.
In addition, the Company is subject to certain covenants in its credit
facility with CIT which restrict the Company's payment of cash dividends
while amounts remain outstanding under the CIT credit facility.
PRICE RANGE OF CLASS A COMMON STOCK
Shares of the Company's Class A Common Stock are traded on the Nasdaq
National Market under the trading symbol "BPRX." No other class of the
Company's common stock is publicly traded.
The following table sets forth the high and low sales prices for
shares of the Company's Class A Common Stock on the Nasdaq National Market
for the periods indicated:
HIGH SALE LOW SALE
--------- --------
FISCAL YEAR ENDED DECEMBER 31, 1995
First quarter . . . . . . . . $4.50 $3.63
Second quarter . . . . . . . . 4.25 3.34
Third quarter . . . . . . . . 4.06 2.94
Fourth quarter . . . . . . . . 3.94 0.94
FISCAL YEAR ENDED DECEMBER 31, 1996
First quarter . . . . . . . . $2.09 $1.09
Second quarter . . . . . . . . 1.81 1.22
Third quarter . . . . . . . . 1.66 0.78
Fourth quarter . . . . . . . . 1.53 0.63
FISCAL YEAR ENDED DECEMBER 31, 1997
First quarter . . . . . . . . $1.44 $0.81
Second quarter . . . . . . . . 1.47 1.03
Third quarter . . . . . . . . 1.63 1.10
Fourth quarter (through October
10, 1997) . . . . . . . . . . 2.31 1.63
On October 10, 1997, the last sale price for shares of the
Company's Class A Common Stock as reported by the Nasdaq National
Market was $2.13 per share. At October 10, 1997, there were
approximately 250 holders of record of shares of Class A Common
Stock. Based on information available to the Company, the
Company believes that there are approximately 2,300 beneficial
holders of shares of Class A Common Stock held in "street" or
other nominee name.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1997, the Company had negative working capital
of $(2,039,938), a positive increase of $788,862 over December
31, 1996 negative working capital of $(2,828,800). Improvement
in the Company's working capital position at June 30, 1997 was
primarily due to operating profit and positive cash flow from
operations during the six months ended June 30, 1997 and the
Company's reversal during the six months ended June 30, 1997 of
$229,000 of reserves previously recorded for chargebacks and
rebates.
Working capital as of June 30, 1997 included an increase of
$650,903 in cash and cash equivalents. Additionally, current
liabilities decreased $1,155,474 from balances at December 31,
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1996 as accounts payable and accrued expenses were reduced. For
the six month period ended June 30, 1997, accounts receivable
decreased $761,405, inventories decreased $99,162 and prepaid
samples/materials decreased $281,180 from levels existing at
December 31, 1996, reflecting the normal seasonality of the
Company's second quarter operations.
On September 19, 1997 (the "Closing"), the Company
consummated the negotiated settlement of all of its outstanding
obligations to Berlex arising out of the Company's 1993
acquisition of the DECONAMINE(R) line of cough and cold products.
Immediately prior to the Closing, the Company was indebted to
Berlex in the approximate aggregate amount of $2,500,000. As
security for the satisfaction of its obligations to Berlex, the
Company had granted to Berlex a lien covering all of the
Company's accounts receivable and warranted to Berlex that until
such time as all of the Company's obligations to Berlex were
satisfied, the Company would not, generally, without Berlex's
consent, grant any person a security interest in, or create a
lien upon, any of the Company's assets.
At the Closing, in satisfaction of all outstanding
obligations then owing to Berlex (approximately $2,500,000 in the
aggregate), and in consideration of Berlex's release of its lien
covering the Company's accounts receivable, the Company (i) paid
to Berlex $1,150,000 million in cash, plus accrued interest (the
"Cash Payment"), (ii) issued to Berlex 450,000 shares of Class A
Common Stock of the Company (which, when added with the other
shares of Class A Common Stock previously issued to Berlex,
represented, at the time of issuance, approximately 19% of the
outstanding Class A Common Stock of the Company) and (iii) agreed
to issue to Berlex, when permissible in accordance with
applicable state corporate law, warrants entitling Berlex to
purchase, under certain conditions, up to an additional 750,000
shares of Class A Common Stock at an exercise price of $1.25 per
share. These warrants are subject to certain anti-dilution
provisions and expire two years after issuance, subject to
extension under certain conditions.
In order to raise the funds necessary for the Company to
make the Cash Payment to Berlex, the Company, concurrently with
the Closing, entered into a $3,000,000 revolving credit facility
with CIT. Advances under this facility are calculated pursuant
to a formula which is based upon the Company's then "eligible"
accounts receivable and inventory levels. This line of credit
has an initial term of three years and is renewable for
successive periods of two years each. Interest accrues on
amounts from time to time outstanding under this facility at the
rate equal to the prime rate of interest from time to time
announced by The Chase Manhattan Bank as its prime rate of
interest plus 2 1/4%. The Company's obligations under this credit
facility have been secured by the grant by the Company to CIT of
a lien upon, and the pledge of a security in, substantially all
of the Company's assets, including the Company's accounts
receivable, inventory and intangible assets (subject to prior
liens). The credit facility contains certain covenants and
restrictions concerning the Company's operations, generally, and
the Company's obligations under this facility have been
personally guaranteed, to a limited extent, by Daniel Glassman,
the Company's Chairman of the Board and Chief Executive Officer.
All over-the-counter cough/cold products are regulated by
the FDA pursuant to monographs which specify permissible active
ingredients, labeling and indications and also determine when
specific drug products, such as the DECONAMINE(R) line of
products, change from prescription to over-the-counter status
(i.e., a status not requiring a prescription for the product
purchase). The Company's DECONAMINE(R) product line, which
currently has prescription status, falls under these monographs.
Once a final monograph is issued by the FDA with respect to a
product, the product historically can remain as a prescription
product for up to one additional year. The Company anticipates
that final monographs for the Company's DECONAMINE(R) product
line, thereby converting the product line from prescription
status to over-the-counter status, are expected to be issued by
the FDA after April 1998. The Company currently intends to
continue to market and distribute its DECONAMINE(R) line of
products as prescription products for as long as it may lawfully
continue to do so. The Company is presently exploring its
marketing and distribution strategy relating to its DECONAMINE(R)
product line after final monographs covering these products are
issued, and, as such, it is not currently possible for the
Company to predict how its operations and financial condition
will be affected, or whether it will have resources sufficient to
aggressively market the DECONAMINE(R) line of products, if, and
when, this product line is converted from prescription status to
over-the-counter status.
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Further, the Company's DECONAMINE(R) SR product requires the
Company to file an ANDA with the FDA to be in compliance with the
regulation that all controlled release products, like DECONAMINE(R)
SR, be the subject of an ANDA. The cost of this ANDA is
approximately $900,000. The Company has entered into an agreement
with Phoenix International to perform the clinical studies required
for the issuance of the ANDA. As of the date of this Prospectus,
the Company had paid approximately $180,000 with respect to this
project. This project is expected to be completed and submitted
to the FDA during 1998. Completion of this research and
development project is subject, however, to the Company's either
generating sufficient cash flow from operations to fund the same
or obtaining requisite financing from outside sources, of which
there can be no assurance. Therefore, the Company cannot at this
time reasonably anticipate the timing of the expenditure of funds
necessary for completing the ANDA with respect to its
DECONAMINE(R) SR product. The inability of the Company to
further develop and/or file the necessary ANDA for DECONAMINE(R)
SR would have a material adverse effect on the Company's
business.
While the Company, at September 30, 1997, had approximately
$700,000 of accounts payable that were more than 90 days past
due, the Company has received indications from creditors that
they are willing to continue to refrain from commencing
enforcement or collection actions against the Company while the
Company negotiates or attempts to restructure its financial
obligations to these creditors. Moreover, the Company believes
that it has meritorious defenses and legitimate rights of offset
with respect to a portion of these accounts payable.
Notwithstanding the foregoing, the Company presently lacks the
cash resources or borrowing base necessary to satisfy in full
these past due accounts payable if the Company were required to
satisfy them immediately.
On December 31, 1996, the Company had negative working
capital of $(2,828,800), a positive increase of $2,099,264 over
the December 31, 1995 negative working capital of $(4,928,064).
The Company's working capital position for Fiscal 1996 was
positively affected by a legal settlement with the Company's
distributor in Canada which yielded approximately $1,600,000
after expenses. These settlement proceeds were used by the
Company to satisfy, in part, existing obligations, including
accounts payable and current maturities of long term debt.
During Fiscal 1996, the Company effectively reduced its
accounts payable and accrued expense balances, as compared to its
balance at December 31, 1995, by approximately $3,900,000. This
was accomplished principally by the Company's utilizing a
majority of the aforementioned settlement proceeds and favorably
settling outstanding amounts due to vendors which yielded
approximately $400,000 in additional savings. The Company also
instituted cost savings initiatives by reducing samples,
materials and finished goods inventory on hand. The Company
continued to reduce the impact of managed care and government
contracts by canceling unprofitable contracts and increasing
prices on others.
The Company's Fiscal 1996 working capital position was
further favorably affected by an interim restructuring of the
obligations then due Berlex arising out of the 1993 DECONAMINE(R)
acquisition. This interim restructuring resulted in the
Company's reducing, from approximately, $7,300,000, to
approximately $3,500,000, the outstanding cash obligation then
negotiated and due to Berlex.
Working capital for Fiscal 1996 further included an increase
in accounts receivable balances over Fiscal 1995 of approximately
$500,000 and a decrease in the Company's inventory and prepaid
samples and materials of approximately $1,200,000 as the Company
reduced its quantities of inventory and prepaid samples and
materials on hand.
With the exception of the capital necessary for the Company
to complete the ANDA with respect to the Company's DECONAMINE(R)
SR product and to satisfy its past due accounts payable, if
necessary, the Company believes that it will have sufficient cash
flow from operations to support its working capital requirements
over the next twelve months.
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Effective January 1997, the Company implemented a 401(K)
Retirement Plan for employees pursuant to which the Company will
match, with shares of the Company's Class A Common Stock,
employee contributions up to 25% of the employee's first 6% of
contributions made per year. All matching stock contributions
will be valued at fair market value as of the date of the match.
The Company expects to expense with respect to this Retirement
Plan less than $50,000 for the fiscal year ending December 31,
1997 based upon currently available information.
In addition, during January 1997, the Company began a
program to repurchase in open market or privately negotiated
transactions over a 24-month period, up to 5% of the Company's
outstanding Class A Common Stock. As of September 30, 1997, the
Company has repurchased an aggregate of 98,700 shares of Class A
Common Stock at a total cost of $130,054. These shares are held
by the Company as treasury shares to be used for purposes deemed
necessary by the Company's Board of Directors, including funding
the Company's 401(k) Retirement Plan matching contribution.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE
30, 1996
Chargebacks and rebates are the difference between prices at
which the Company sells its products (principally DECONAMINE(R)
SR) to wholesalers and the sales price ultimately paid by the
end-user (often governmental agencies and managed care buying
groups) pursuant to fixed price contracts. The Company records
an estimate of the amount either to be charged back to the
Company or rebated to the end-user at the time of sale to the
wholesaler.
GROSS SALES (sales prior to chargebacks, rebates, returns
and discounts) for the six months ended June 30, 1997 were
$10,527,070. These sales results represented a $763,020 decrease
from gross sales for the six months ended June 30, 1996. This
decrease was primarily the result of a decrease in the volume of
DECONAMINE(R) product line sales during the six months ended June
30, 1997. A combination of several other factors helped
contribute to this decrease, including the Company's policy of
reducing sales to unprofitable accounts. Increased sales of Doak
products, especially Formula 405(R) /A.H.A., Acid Mantle(R) and
Trans-Ver-Sal(R), helped offset the decline in DECONAMINE(R)
sales. Gross sales for the Company's DECONAMINE(R) product line
accounted for approximately 59% of gross sales for the six months
ended June 30, 1997, versus 68% of gross sales for the six months
ended June 30, 1996.
NET SALES (net of all adjustments to sales) for the six
months ended June 30, 1997 were $7,373,970, representing an
increase of $465,471 for the six months ended June 30, 1997. The
net sales increase for the six month period primarily reflects
increases in the sales of the Company's Doak products of $839,009
(40%). The Company's analysis of the trend in actual chargebacks
and rebates resulted in a decrease in the percentage used to
adjust gross sales to net sales for the six months ended June 30,
1997, resulting in increased net sales and profits of $45,000.
Additionally, during the six months ended June 30, 1997, net
sales were positively impacted by the Company's reversal of
previously established reserves of $229,000 ($143,000 from 1997
and $86,000 from prior years). Based upon the reduction in
actual chargeback and rebate trend, the release of these reserves
reflects improvements in processing chargebacks and rebates as
well as less reliance on managed care sales. Any future
reversals will reflect continuing and future analysis of this
trend. There can be no assurance, however, that this trend will
continue.
COST OF SALES for the six months ended June 30, 1997 were
$1,807,376, representing an increase in cost of sales of $126,336
from the cost of sales for the six months ended June 30, 1996.
The Company's gross profit margin for the six months ended June
30, 1997 was 75%, compared to 76% during the six months ended
June 30, 1996. This decrease reflects a change in the mix of the
Company's sales with greater sales of Doak products which
traditionally carry a lower gross profit percentage.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $4,011,810
for the six months ended June 30, 1997, representing an increase
of $351,803 (10%) over selling, general and administrative
expenses for the six months ended June 30, 1996. This increase
principally reflects increased investment in the sales and
marketing areas, partially offset by savings in research and
development costs. The Company, however, continues to implement
steps designed to reduce expenses and maintain cost controls.
DEPRECIATION and AMORTIZATION EXPENSES for the six months
ended June 30, 1997 were $806,064, representing a decrease of
$106,115 as compared to the comparable period ended June 30,
1996. This decrease reflects lower amortization expenses on
product acquisitions, principally due to intangible asset
reduction associated with the restructuring of the Company's
obligations to Berlex arising out of the DECONAMINE(R)
acquisition.
INTEREST EXPENSE - NET for the six months ended June 30,
1997 decreased by $158,159 as compared to the comparable period
ended June 30, 1996. This decrease was principally due to debt
reduction associated with the DECONAMINE(R) product line
acquisition.
NET INCOME for the six months ended June 30, 1997 was
$342,370, representing an increase in net income of $27,846 (9%)
for the six months ended June 30, 1997 as compared to the
comparable period during 1996. This increase in net income is
after the provision for income taxes of $223,750 for the six
months ending June 30, 1997 and the reversal of the
aforementioned reserves of $229,000. No income taxes were
provided for in the first six months of 1996 because of tax loss
carryforwards from prior years.
NET INCOME PER COMMON SHARE for the six months ended June
30, 1997 was $.04. Net income per common share was similarly
$.04 for the six months ended June 30, 1996. Computations of net
income per common share for the six months ended June 30, 1997
and 1996 do not include the effect of stock equivalents because
the inclusion of such stock equivalents would be antidilutive or
not materially dilutive.
FISCAL 1996 COMPARED TO FISCAL 1995
Chargebacks and rebates received by the Company were re-
evaluated during the third quarter of the fiscal year ended
December 31, 1995 ("Fiscal 1995"), which resulted in the
Company's changing its prior estimates for managed care sales
relating to DECONAMINE(R) SR. Further, during the third quarter
of Fiscal 1995, the Company realized a change in its mix of
managed care and government sales as certain large customers who
had been purchasing DECONAMINE(R) SR directly from the Company
during the year ended December 31, 1994 began, in Fiscal 1995, to
buy indirectly through wholesalers in larger quantities. As a
result, during Fiscal 1995, the Company recorded a change in
estimate for chargebacks relating principally to government and
managed care sales of DECONAMINE(R) SR made in prior periods.
The re-estimate for chargebacks and rebates recorded in the third
quarter of Fiscal 1995 resulted in a $1,300,000 charge to
operations.
NET SALES for Fiscal 1996 were $12,769,266, representing an
increase of $2,148,205, or approximately 20%, from Fiscal 1995
net sales. This increase in net sales was primarily due to (i)
an increase in the net average selling prices (after trade price
adjustments) of DECONAMINE(R), (ii) the impact of the 1995 sales
decrease of $1,300,000 resulting from a change in estimate, (iii)
the impact of the acquisition of ACID MANTLE(R) in May 1996,
which contributed approximately $500,000 to net sales and (iv) a
significant decrease during Fiscal 1996 in chargebacks, rebates
and trade promotion discounts.
Net sales of the DECONAMINE(R) product line accounted for
approximately 51% of overall net sales for Fiscal 1996 compared
to approximately 40% of overall net sales for Fiscal 1995.
DECONAMINE(R) unit sales during Fiscal 1996 decreased by
approximately $2,700,000 million, or 17%, because the Company
canceled contracts with managed care organizations, buying groups
and the United States government which fell below targeted profit
contributions. This decrease, which was planned by the Company,
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was offset by renegotiated higher prices on certain other managed
care and government contracts, the affect of which the Company
has and will continue to recognize in future periods.
Chargebacks and rebates, principally relating to DECONAMINE(R) SR
and CARMOL(R), were $6,500,000 for Fiscal 1996 as compared to
$11,700,000 for Fiscal 1995 (including a change in estimate for
prior periods of $1,300,000). During Fiscal 1996, the Company
received monetary concessions of approximately $275,000 from
managed care vendors receiving rebates.
During Fiscal 1995, DECONAMINE(R) sales (purchased through
wholesalers to the United States Government and affiliated
agencies) accounted for approximately 25% of the Company's gross
sales, but less than 10% of net sales. During Fiscal 1996, a
significant amount of these contracts were renegotiated by the
Company at higher prices and DECONAMINE(R) sales to the United
States Government and affiliated agencies, through wholesalers,
accounted for approximately 27% of the Company's gross sales and
9% of net sales.
During Fiscal 1996, the managed care system of chargebacks
and rebates gained greater acceptance by the pharmaceutical
industry in general. Managed care organizations increasingly
began using these sales price adjustments (chargebacks and
rebates) as a method to reduce overall costs in drug procurement.
Levels of chargebacks and rebates increased momentum during
Fiscal 1996 and caused a greater need for more sophisticated
tracking and data gathering to confirm sales at contract prices
to end users with respect to related Company sales to
wholesalers. The Company believes it has implemented new
procedures, systems and policies to more closely monitor the
managed care and government sales areas of its business,
including higher reserves based upon more conservative estimates.
COST OF SALES for Fiscal 1996 was $3,311,313, representing a
decrease from Fiscal 1995 cost of sales of $649,024, or
approximately 16%. This decrease was primarily due to the
Company's sales product mix. The Company's gross profit margin
for Fiscal 1996 was 74% as compared to 63% during Fiscal 1995.
The increase in the Company's gross profit margin in Fiscal 1996
was primarily attributed to DECONAMINE(R) SR sales at higher
gross profit margins and the negative impact of the change in
estimate on the Fiscal 1995 gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $6,947,871
for Fiscal 1996, representing a decrease of $5,913,887, or
approximately 46%, from Fiscal 1995 expenses. This reduction was
the result of cost saving initiatives implemented by the Company
during the fourth quarter of Fiscal 1995 and throughout Fiscal
1996 which included reducing payroll, advertising and promotional
expenses, as well as curtailing research and development efforts.
In addition, the Company received monetary concessions of
approximately $125,000 from its vendors and suppliers during
Fiscal 1996 for immediate payments from the proceeds of the
Company's legal settlement. See "Other Income" below.
DEPRECIATION AND AMORTIZATION EXPENSES for Fiscal 1996 were
$1,855,141, representing an increase of $165,154, or
approximately 10%, as compared to similar expenses for Fiscal
1995. This increase was principally due to amortization of
intangibles relating to the product acquisition of ACID MANTLE(R)
during Fiscal 1996. The Company also upgraded its hardware and
software computer capability during Fiscal 1996 and Fiscal 1995
resulting in increased depreciation expense.
OTHER INCOME for Fiscal 1996 was $1,645,132, representing
the net payment of $1,645,132 in connection with the settlement
of a lawsuit involving the Company's Canadian distributor.
INTEREST EXPENSE - NET for Fiscal 1996 increased by $25,322,
or 5%, from the corresponding period during Fiscal 1995 due to
interest expense relating to renegotiating outstanding
indebtedness owing to Berlex arising out of the DECONAMINE(R)
product line acquisition.
NET INCOME for Fiscal 1996 was $1,598,507, representing an
increase of $8,519,748 from a net loss of $(6,921,241) for Fiscal
1995. This increase was principally the result of a significant
reduction in chargebacks and rebates realized by the Company
during Fiscal 1996. Net income for Fiscal 1996 was also
-16-
<PAGE>
positively impacted by the Company's recognizing the
aforementioned legal settlement involving the Company's Canadian
distributor, net of expenses, of $1,645,132. Net Income for
Fiscal 1996 was also favorably impacted by the Company's
conclusion of renegotiating certain managed care and United
States Government contracts at higher prices, as well as
obtaining monetary concessions from customers, vendors and
suppliers. Increases in earnings were further attributed to the
Company's cost saving initiatives relating to selling, general
and administrative reductions and production cost savings, as
well as the positive impact of canceling and renegotiating
certain contracts.
NET INCOME PER COMMON SHARE for Fiscal 1996 was $.22,
representing an increase of $1.16 as compared to a net loss per
common share for Fiscal 1995 of ($.94). Computation of net
income per common share for Fiscal 1996 and Fiscal 1995 do not
include the effect of stock equivalents because the inclusion of
such stock equivalents would be antidilutive or not materially
dilutive.
SEASONALITY
Sales of the Company's DECONAMINE(R) product line and other
cough/cold/flu products, which accounted for 56% and 46%,
respectively, of the Company's net sales for Fiscal 1996 and
Fiscal 1995, are concentrated in the fall and winter months.
Consequently, sales revenues of these products generally are, and
will be, determined by the severity of the cough/cold/flu season.
The Company promotes these products for allergy symptoms during
the spring and summer months to smooth the seasonality of sales
of these products.
EFFECTS OF INFLATION
Management believes that the Company's operations will not
be adversely affected by the future impact of inflation on sales
and results of operations.
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<PAGE>
BUSINESS
The Company manufactures and markets over-the-counter and
prescription pharmaceutical and health related products. The
Company's product line currently includes dermatological brands
(marketed by the Company's Doak subsidiary) and nutritional,
respiratory, personal hygiene and internal medicine brands
(marketed by the Company's Kenwood Laboratories division).
Substantially all of the Company's dermatological product lines
are manufactured and packaged at Doak's Westbury, New York
facility. The Company's other product lines are manufactured and
supplied by independent contractors under the Company's quality
control standards. The Company's products are then marketed,
either directly or indirectly through intermediaries, to
wholesalers, retail chains and healthcare institutions throughout
the United States and to distributors in selected international
markets.
The Company's growth strategy has been to make acquisitions
of established products from major pharmaceutical organizations
which the Company believes require intensified marketing and
promotional attention. The Company believes that significant
growth opportunities exist in this market niche as a result of
the divestiture by major pharmaceutical companies of certain
established product lines that have become less profitable in
relation to their other products. As a result, the Company has
acquired, and intends to continue to acquire, rights to
manufacture and market pharmaceutical and health related products
which are effective and for which a demonstrated market exists,
but which are not actively promoted and where the surrounding
competitive environment does not necessarily include major
pharmaceutical companies.
The Company's ability to make further product acquisitions
will depend, among other things, on the availability of
appropriate acquisition opportunities and financing and its
ability to consummate acquisitions on favorable terms. Because
there can be no assurance that the Company will be able to
consummate in a timely manner attractive acquisitions on
favorable terms, management has focused, and will continue to
focus, on developing and extending the Company's existing
acquired product lines.
SIGNIFICANT PRODUCT ACQUISITIONS
The Company commenced operations in January 1985 with the
purchase of certain rights (principally trademarks) to a line of
dermatological products from Alvin Last Co., Inc.
In August 1985, the Company acquired certain trademark
rights to several vitamin and nutritional products and certain
other assets from Kenwood Laboratories.
In September 1988, the Company acquired rights to certain
products from Schering-Plough Corporation, including TYZINE(R), a
nasal decongestant, NITROGLYN(R), nitroglycerin capsules,
IRCON(R), an iron supplement, and IPSATOL(R), a cough medicine.
In August 1991, the Company acquired certain rights,
including the trademark, to the over-the-counter cold and allergy
medication DUADACIN(R), from Hoechst Roussel Pharmaceuticals,
Inc.
In April 1992, the Company acquired certain rights,
including the trademark, to the over-the-counter laxative
NEOLOID(R), from American Cyanamid Company.
In October 1992, the Company acquired the assets of Ram
Laboratories ("RAM"), a pharmaceutical company. RAM specializes
in marketing healthcare products to the hispanic market in the
United States and Puerto Rico.
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<PAGE>
In December 1992, the Company acquired certain rights,
including the trademark and patent, to the personal lubricating
insert LUBRIN(R) INSERTS ("LUBRIN(R)") for a purchase price of
approximately $1 million, a royalty against future LUBRIN(R)
sales and warrants to purchase up to 60,000 shares of Class A
Common Stock at $4.50 per share. Concurrently with this
acquisition, the Company and Upsher-Smith Laboratories, Inc.
("Upsher-Smith") entered into a three-year manufacturing
contract, renewable at six-month intervals after the initial
term, whereby Upsher-Smith will manufacture LUBRIN(R) for the
Company and agreed for seven years not to compete with the
Company with respect to LUBRIN(R). In connection with this
acquisition, the Company granted Upsher-Smith a security interest
in LUBRIN(R) and the associated intangible assets to secure its
repayment obligation with respect to certain deferred amounts
incurred. At September 30, 1997, the Company had a balance of
approximately $60,000 remaining arising out of its acquisition of
LUBRIN(R). This balance is payable during the fourth quarter of
the fiscal year ending December 31, 1997 ("Fiscal 1997").
In March 1993, the Company acquired from Tsumura Medical, a
division of Tsumura International, Inc. ("Tsumura"), all
technical, proprietary and distribution rights to a specialized
dermal patch product, TRANS-VER-SAL(R), currently used in the
treatment of warts and a license to market GLANDOSANE(R), a
synthetic saliva aerosol product used to alleviate dry mouth
caused by various treatments and illnesses. The purchase price
for this transaction was approximately $1,470,000, a royalty
against future sales of the acquired products and warrants to
purchase up to 150,000 shares of Class A Common Stock at $4.50
per share. The Company has granted Tsumura a security interest
in the trademarks acquired to secure the Company's payment
obligations to Tsumura for the products acquired. At September
30, 1997, the Company had a balance of approximately $80,000
remaining arising out of its transaction with Tsumura. This
balance is payable during the fourth quarter of Fiscal 1997 and
the first quarter of the fiscal year ending December 31, 1998.
In December 1993, the Company acquired from Berlex, for an
aggregate adjusted purchase price (after giving effect to several
amendments and restructurings) of approximately $14,700,000, all
technical, proprietary and distribution rights to the
DECONAMINE(R) line of cough/cold/flu products, including
approximately $400,000 of DECONAMINE(R) inventory. In
consideration for this acquisition, which is the Company's
largest to date, the Company (i) paid Berlex an aggregate of
approximately $13,000,000 (ii) issued to Berlex an aggregate of
1,450,000 shares of Class A Common Stock of the Company
(representing the shares being registered pursuant to the
Registration Statement of this Prospectus forms a part) and (iii)
agreed to issue to Berlex, when permissible in accordance with
applicable state corporate law, warrants to purchase, under
certain circumstances, up to an additional 750,000 shares of
Class A Common Stock at $1.25 per share.
During February 1994, the Company purchased from The Upjohn
Company ("Upjohn") all United States manufacturing, packaging and
proprietary rights, including all trademarks and registrations,
to two prescription products, ADEFLOR M(R), a vitamin and mineral
tablet with fluoride, and PAMINE(R), a methscopolamine bromide
tablet used in connection with the treatment of peptic ulcers.
In June 1994, the Company acquired from Syntex (U.S.A.) Inc.
all manufacturing, packaging, quality control, stability, drug
experience, file history, customers and marketing rights, titles
and interests, including all U.S. trademarks, to CARMOL(R) 10 and
CARMOL(R) 20 (nonprescription total body moisturizers) and
CARMOL(R) HC (a prescription moisturizer containing
hydrocortisone)(the "Carmol Products").
In May, 1996, the Company acquired the trademark rights to
the ACID MANTLE(R) skin treatment line from Sandoz
Pharmaceuticals Corporation ("Sandoz"), and the exclusive ACID
MANTLE(R) manufacturing, marketing and distribution rights for
the United States and Puerto Rico. In addition, the Company
purchased Sandoz's entire inventory of ACID MANTLE saleable
products and raw materials. In consideration, the Company agreed
to pay Sandoz $900,000, of which approximately $650,000 remained
outstanding at September 30, 1997 and is payable $250,000 at
December 31, 1997 and $100,000 on each of May 8, 1998, 1999, 2000
and 2001. The Company has granted Sandoz a security interest in
the trademarks acquired to secure the Company's payment
obligations to Sandoz.
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<PAGE>
ACQUISITION OF DOAK SUBSIDIARY
During February 1994, the Company acquired from Doak's
principal stockholders, a controlling interest in Doak. The
remaining capital stock of Doak was acquired by the Company
pursuant to a merger consummated in January 1995. Total
consideration paid by the Company for Doak was approximately
$1,400,000.
PRODUCTS
The following is a list of products, by therapeutic
category, that are marketed and distributed by the Company as of
September 30, 1997. All of the Company's products are available
over-the-counter, with the exception of DECONAMINE(R), PAMINE(R),
CARMOL(R) HC, CARMOL(R) 40, ADEFLOR(R) M, NITROGLYN(R),
TYZINE(R), and GLUTOFAC-ZX(R), each of which is a prescription
pharmaceutical.
DERMATOLOGICAL PRODUCTS USES
----------------------- ----
ACID MANTLE(R) Skin acidifier
BURO-SOL(R) Antiseptic Powder (4 oz.) Skin care
CARMOL(R) HC Rx - 1% Hydrocortisone Rx product for a variety of
Acetate Cream (1 oz.) dermatological conditions
CARMOL-10(R) Deep Moisturizing Lotion Skin care
(6 oz.) and CARMOL(R)-20 Cream (3 oz.)
CARMOL(R) 40Rx - 40% Rx Potent tissue-softener
(Carbamide Cream)
DOAK(R) DERMATOLOGY Products Mostly coal tar based therapies
FORMULA 405(R) Variety of topical products for
the skin, hair and nails
FORMULA 405(R) A.H.A Alpha Hydroxy Acid skin care
OMIDERM[TM] Wound and burn dressings in
various sizes
SULFOAM(R) Medicated Anti-dandruff Control of dandruff
Shampoo (8 oz.)
SULPHO-LAC(R) Acne Medication Treatment of acne
(1.0 oz. tube and 1.75 oz. jar)
SULPHO-LAC(R) Medicated Soap (3 oz.) Treatment of acne
TERSASEPTIC(R) Skin cleanser
TRANS-VER-SAL(R) Wart Remover Kit Dermal patch delivery system for
(6mm, 12mm, 20mm sizes) wart removal
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<PAGE>
NUTRITIONAL PRODUCTS USES
-------------------- ----
ADEFLOR M(R) Rx(100s) Vitamins and minerals with
sodium fluoride
APATATE(R) Liquid (4 oz. and 8 oz.) B-complex supplement for
nutritional deficiencies
associated with illness in
adults or children
APATATE(R) Tablets (50s) Same as above
APATATE(R) FORTE Liquid (8 oz.) High-potency nutritional
supplement containing eight
essential vitamins and minerals
plus L-lysine
GLUTOFAC(R) Caplets (90s) Vitamin/mineral supplement for
replenishing nutrients in
patients with conditions such as
diabetes mellitus, alcoholism,
psychological stress, or chronic
illness
GLUTOFAC(R)-ZX Capsules Rx (60's) Prescription high-potency
multivitamin and multimineral
supplement including zinc and
folic acid
I.L.X(R) Elixir (8 oz.); Iron supplement for nutritional
I.L.X(R) B12 Elixir (8 oz.); and iron deficiency anemias
I.L.X(R) B12 Sugar Free Elixir (8 oz.);
I.L.X(R) B12 Caplets (100s)
IRCON(R) (100s) Iron supplement
IRCON(R)-FA (100s) Iron supplement with folic acid
KENWOOD THERAPEUTIC LIQUID(R) (8 oz.) Vitamin/mineral supplement for
children and adults with poor
diet
INTERNAL MEDICINE PRODUCTS USES
-------------------------- ----
NITROGLYN(R) Extended Release For the prevention of angina
Nitroglycerin Capsules Rx pectoris (due to coronary artery
2.5 mg.; 6.5 mg. disease)
9.0 mg.; (100s)
PAMINE(R) 2.5 mg. Tablets Rx (100s) Anticholinergic/antispasmatic
RESPIRATORY PRODUCTS USES
-------------------- ----
DECONAMINE(R) SR Capsules Sustained release antihistamine
(HCL 120 mg.) (100s; 500s) decongestant
DECONAMINE(R) Chewable Tablets Pediatric
(HCL 15 mg.) Rx (100s) antihistamine/decongestant
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<PAGE>
DECONAMINE(R) Dye-Free Syrup Liquid
(HCL 30 mg.) Rx (473 ml) antihistamine/decongestant
DECONAMINE(R) Dye-Free Tablets Antihistamine/decongestant
(HCL 60 mg.) Rx (100s)
DECONAMINE(R) CX Liquid (HCL 5mg.) Liquid antitussive/expectorant
Rx (473 ml)
DECONAMINE(R) CX Tablets (HCL 5mg.) Antitussive/expectorant
Rx (100s)
DUADACIN(R) Capsules (100s; 1000s; Antipyretic/analgesic/
Dispense-A-Pak [125 unit packs of 8]) decongestant
IPSATOL(R) Cough Formula (4 oz.) Pediatric
antitussive/expectorant
TYZINE(R) (tetrahydrozoline HCI) Nasal decongestant
Solution Rx, 30 ml; Spray Rx 15 ml
Pediatric Nasal Drops Rx 15 ml
PERSONAL HYGIENE PRODUCTS USES
------------------------- ----
GLANDOSANE(R) (15 ml) Mouth moisturizer
LUBRIN(R) Inserts (5s, 12s) Personal lubricating inserts for
use in vaginal dryness
NEOLOID(R) Castor Oil (4 oz.) Laxative
NEW BEAUTY PATCH PRODUCT
------------------------
The Company, through its Doak subsidiary, is currently
preparing for the launch, anticipated to occur during October
1997, of an evening dermal, anti-wrinkle patch. This patch,
which has been designed to release, throughout an eight-hour
period during the night, Vitamin C, is perceived by the Company
as a new alternative anti-wrinkle product. The Company and
Osmotics Corporation, the manufacturer of the product, have
entered into a distribution agreement pursuant to which, among
other things, the Company has been granted, through March 1998,
the exclusive, and thereafter, the non-exclusive, U.S. and
international distribution rights for this product in
consideration for a royalty against sales.
PRODUCT LIABILITY INSURANCE
The Company maintains $3,000,000 of product liability
insurance on its products. This insurance is in addition to
required product liability insurance maintained by other
manufacturers of the Company's products. The Company believes
that this amount of insurance coverage is adequate and
reasonable. To date, no product liability claim has been made, to
the Company's knowledge, against the Company, and management has
no reason to believe that any claim is pending or threatened.
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<PAGE>
MANUFACTURERS AND SUPPLIERS
The manufacturing processes and operations of manufacturing
facilities for pharmaceutical products are subject to rigorous
regulation, including the need to comply with the FDA's cGMP's.
As a result of the Doak acquisition, the Company, during Fiscal
1996 and Fiscal 1995, manufactured and packaged, for its own
account, its Doak product line, including FORMULA 405(R), DOAK(R)
DERMATOLOGY, CARMOL(R), ACID MANTLE(R) and TRANS-VER-SAL(R)
products. These products represented during Fiscal 1996 and
Fiscal 1995 approximately 32% and 40%, respectively, of the
Company's net sales. The Company currently does not manufacture
any products outside of its Doak product line and does not
anticipate doing any contract manufacturing or packaging for
unaffiliated third parties.
The Company generally purchases its products from
approximately 20 different vendors on open credit terms, which
are generally payable in 30 days. Two companies manufacturing
products and two companies producing packaging products for the
Company accounted for approximately 20%, 12%, 13% and 10%,
respectively, of the Company's cost of goods sold for Fiscal
1995. One company manufacturing and packaging products for the
Company accounted for approximately 16% of the Company's cost of
goods sold for Fiscal 1996. No other vendor, packager or
manufacturer accounted for more than 10% of the Company's cost of
goods sold for Fiscal 1996 or Fiscal 1995. Management believes
it can promptly obtain replacement manufacturing and packaging
arrangements on acceptable terms. Consequently, the Company
believes that a loss of any or all of its current vendors,
manufacturers or packagers would not have a material adverse
effect on the Company's business operations.
With the exception of arrangements relating to LUBRIN(R) and
the Company's new beauty patch product, the Company does not have
any licensing, manufacturing or other supply agreements with its
manufacturers or suppliers. Consequently, any of the Company's
manufacturers or suppliers could terminate their relationship
with the Company at any time, without liability to the Company.
Management believes it can promptly procure replacement
manufacturing arrangements on acceptable terms and, as a
precautionary measure, has begun to arrange for alternative
manufacturers for each of the Company's pharmaceutical products.
MARKETING AND SALES
The Company has acquired established products and product
lines, and developed line extensions for new products. Therefore,
the Company has concentrated its marketing efforts on the
continued promotion of its acquired product lines and line
extensions to established customers and the expansion of
distribution to new customers. The Company's overall marketing
philosophy is to intensify and enhance the promotion of its
acquired products and line extensions throughout the United
States and, where feasible, in selected international markets.
The Company markets and sells its products through full time
sales personnel and a network of distributors and brokers.
Non-prescription products are sold primarily to drug wholesalers,
chain and independent pharmacies, chain and independent food
stores, mass merchandisers, physician supply houses and
hospitals. Prescription products are sold primarily to
wholesalers, retail chains and managed care providers. The
Company currently has approximately 1,100 active accounts, of
which there are approximately three principal wholesalers which
serve as national distributors of the Company's products, 500
retail chains and stores, 200 doctors and institutional accounts,
100 managed care providers and 100 government entities.
During Fiscal 1995, three wholesale customers accounted for
approximately 16%, 13% and 12%, respectively, of the Company's
net sales. During Fiscal 1996, the same three wholesale
customers accounted for approximately 15%, 12% and 10% of the
Company's net sales. No other single customer accounted for more
than 10% of the Company's net sales for Fiscal 1996 or Fiscal
1995. The loss of any of these three customers would have a
material adverse effect on the Company's future operations.
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<PAGE>
The Company's DECONAMINE(R) product line (categorized below
as respiratory products) accounted for approximately 51% and 40%,
respectively, of the Company's Fiscal 1996 and Fiscal 1995 net
sales. The loss of the DECONAMINE(R) product line, consequently,
would have a material adverse effect on the Company's future
operations.
Doak's TRANS-VER-SAL(R) products accounted for approximately
10% and 14%, respectively, of the Company's Fiscal 1996 and
Fiscal 1995 net sales. ACID MANTLE(R), acquired by Doak during
May 1996, accounted for approximately 4% of the Company's Fiscal
1996 net sales. Doak's other products, including Formula 405(R),
accounted for approximately 18% and 26%, respectively, of the
Company's Fiscal 1996 and Fiscal 1995 net sales. Doak's products
are all categorized below as dermatologic products.
The Company's six months ended June 30, 1997, Fiscal 1996
and Fiscal 1995 net sales volume percentages by category were as
follows:
Six Six
Months Months
Ended Ended
June June
30, Fiscal Fiscal 30, Fiscal Fiscal
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Respiratory.... 46% 56% 46% Nutritional... 6% 6% 6%
Dermatologic... 43% 32% 40% Internal
Medicine...... 1% 2% 5%
Personal
Hygiene........ 4% 4% 3%
Sales of the Company's DECONAMINE(R) product line and other
cough/cold/flu products are concentrated in the fall and winter
months. Consequently, sales revenues of these products generally
are, and will be, determined by the severity of the
cough/cold/flu season. The Company promotes these products for
allergy symptoms during the spring and summer months to smooth
the seasonality of these sales.
The Company's principal marketing strategy is to furnish
samples of the Company's products and related literature to
physicians to encourage them to recommend the Company's products
to their patients. The Company's marketing department consists
of a Senior Vice President of Marketing and Business Planning, a
Group Product Director, Doak Product Manager, Customer Service
Manager, National Trade Director and Vice President - Managed
Care.
The sales department consists of a Vice President of Field
Sales, Regional Sales Director, four district managers, a U.S.
Government representative, approximately 26 full time and one
part time salespersons located in Alabama, New Jersey, Georgia,
Virginia, Maryland, California, Puerto Rico, Tennessee, Texas,
Illinois, Florida, Pennsylvania and New York. The Company's
sales force also attends medical conventions to increase
physician awareness of the Company's products.
As of September 30, 1997, the Company has contracted with
approximately 13 independent contractors to form a Drug Sample
Distributor (DSD) network throughout the United States whose
objective is to distribute samples and literature directly to
physicians in areas inaccessible to full-time sales staff or in
key regions where more comprehensive coverage is appropriate.
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<PAGE>
The Company has made a strategic decision to concentrate
selling and marketing resources on eight principal products
(which represents 86% of Fiscal 1996 Net Sales) as follows:
KENWOOD BRANDS SPECIALTY
-------------- ---------
DECONAMINE(R) General Practitioners,
Allergists Pediatricians, Ear,
Nose and Throat Specialists
TYZINE(R) General Practitioners,
Allergists Pediatricians, Ear,
Nose and Throat Specialists
PAMINE(R) Gastroenterologists
GLUTOFAC(R)/GLUTOFAC(R)-ZX General Practitioners
DOAK BRANDS SPECIALTY
----------- ---------
CARMOL(R) Dermatologists, Podiatrists
TRANS-VER-SAL(R) Dermatologists, Podiatrists
ACID MANTLE(R) Dermatologists
FORMULA 405(R)/A.H.A Dermatologists
To facilitate sales of the Company's products
internationally (including Puerto Rico), the Company, with an
international staff which includes a President of the Bradley
International division, a full-time sales associate and one
consultant, has entered into agreements with approximately 25
international pharmaceutical distributors to provide for
distribution and promotion of the Company's products.
Approximately 11% and 20%, respectively, of the Company's Fiscal
1996 and Fiscal 1995 net sales were from international business.
No single international distributor accounted for greater than
10% of the Company's Fiscal 1996 or Fiscal 1995 net sales.
The Company has received product registrations and has
applied for additional product registrations to distribute its
products in certain international markets as follows:
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<PAGE>
THE COMPANY'S INTERNATIONAL MARKETING STATUS
CURRENTLY
MARKETING
Barbados CARMOL(R)
GLUTOFAC
IPSATOL
I.L.X(R)
LUBRIN(R)
KTL(R)
DECONAMINE(R)
TRANS-VER-SAL(R)
Canada LUBRIN(R)
NEOLOID(R)
TRANS-VER-SAL(R)
DOAK LINE
TAR PRODUCTS
FORMULA 405(R)
KTL(R)
Chile TRANS-VER-SAL(R)
Cyprus TYZINE(R)
SULPHO-LAC(R)
IRCON(R)
KTL(R)
A.H.A LINE
IPSATOL(R)
LUBRIN(R)
Denmark TRANS-VER-SAL(R)
Dominican Republic DUADACIN(R) Mexico TRANS-VER-SAL(R)
IRCON(R) FORMULA 405(R)
APATATE(R) A.H.A LINE
LUBRIN(R) TAR SHAMPOO
GLUTOFAC(R)
I.L.X(R) Portugal TRANS-VER-SAL(R)
KTL(R)
Puerto Rico COMPLETE
Finland LUBRIN BRADLEY LINE
France TRANS-VER-SAL(R) Saudi Arabia FORMULA 405(R)
TAR PRODUCT
Hong Kong DOAK LINE SULPHO-LAC(R)
NITROGLYN(R) A.H.A LINE
GLUTOFAC(R) CARMOL(R)
A.H.A LINE TRANS-VER-
SAL(R)
Singapore LUBRIN(R)
Iceland TRANS-VER-SAL A.H.A LINE
FORMULA 405(R)
DOAK LINE Spain TAR DISTILLATE
TRANS-VER-
SAL(R)
Israel LUBRIN(R) Sri Lanka TRANS-VER-
SAL(R)
Italy TRANS-VER-SAL(R) DUADACIN(R)
LUBRIN(R)
Jordan FORMULA 405(R) SULPHO-LAC(R)
A.H.A LINE TYZINE(R)
CARMOL(R)
DOAK TAR Taiwan FORMULA 405(R)
TRANS-VER-SAL(R) A.H.A LINE
DOAK LINE
United Arab FORMULA 405(R)
Emirates A.H.A LINE(R)
CARMOL(R)
Vietnam FORMULA 405(R)
A.H.A LINE(R)
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<PAGE>
THE COMPANY'S INTERNATIONAL MARKETING STATUS
Although the Company anticipates that it will receive the necessary
approvals to market its products in the countries listed below, there can
be no assurance that such approvals will be received.
EXPECTING TO MARKET WITHIN A YEAR
China NITROGLYN(R)
Dominican Rep. DECONAMINE(R)
TRANS-VER-SAL(R)
CARMOL(R)
France TRANS-VER-SAL(R)12mm
Hong Kong IRCON(R)
IRCON(R)FA
TRANS-VER-SAL(R)
CARMOL(R)20
Italy LUBRIN(R)
Malaysia LUBRIN(R)
TRANS-VER-SAL(R)
Mexico CARMOL(R) 10 & 20
SULPHO-LAC(R)
Singapore CARMOL(R) 10 & 20
TRANS-VER-SAL(R)
Taiwan SULPHO-LAC(R)
Thailand TRANS-VER-SAL(R)
LUBRIN(R)
Turkey LUBRIN(R)
Zimbabwe TRANS-VER-SAL(R)
WORKING ON REGISTRATION
Austria TRANS-VER-SAL(R)
LUBRIN(R)
Bangladesh TRANS-VER-SAL(R)
LUBRIN(R)
Belgium TRANS-VER-SAL(R)
Brunei LUBRIN(R)
TRANS-VER-SAL(R)
China TRANS-VER-SAL(R)
SULPHO-LAC(R)
DECONAMINE(R)
GLUTOFAC(R)
Cyprus GLUTOFAC(R)
APATATE(R)
DECONAMINE(R)
Dominican Republic FORMULA 405(R)
Egypt DOAK LINE
SULPHO-LAC(R)
TRANS-VER-SAL(R)
Guatemala TRANS-VER-SAL(R)
LUBRIN(R)
FORMULA 405(R)
APATATE(R)
IRCON(R)
DECONAMINE(R)
Greece TRANS-VER-SAL(R)
Hong Kong DUADACIN(R)
SULPHO-LAC(R)
Israel FORMULA 405(R)
CARMOL(R) 10 & 20
TRANS-VER-SAL(R)
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Lebanon DOAK LINE
TRANS-VER-SAL(R)
Malaysia CARMOL(R) 10 & 20
Singapore DUADACIN(R)
DOAK TAR PRODUCTS
Taiwan TRANS-VER-SAL(R)
DUADACIN(R)
GLUTOFAC(R)
Thailand CARMOL(R)
FORMULA 405(R)
TRANS-VER-SAL(R)
Turkey TRANS-VER-SAL(R)
DECONAMINE(R)
COMPETITION
The distribution and marketing of pharmaceutical and health
related products is highly competitive. The Company competes
primarily against established pharmaceutical and consumer product
companies which currently market products that are equivalent, or
functionally similar, to those the Company markets. The Company
seeks to compete based on targeted marketing, promotional
programs, lower prices and service. Direct competition is
primarily limited by larger pharmaceutical companies unless "next
generation" formulas are introduced. Most of the Company's
competitors possess substantially greater financial, technical,
marketing and other resources than the Company. In addition, the
Company competes for the manufacture of its products from
suppliers who manufacture and supply such products to other
companies, including those competitive with the Company's
products.
GOVERNMENT REGULATION
All pharmaceutical products are subject to rigorous
regulation by the FDA and by state authorities (and comparable
agencies in foreign countries), primarily under the Federal Food
Drug and Cosmetic Act and the regulations promulgated thereunder
(along with comparable state laws). These laws regulate the
manufacture, shipping, storage, sale and use of such products and
product samples, including current cGMP'S, and Standard Operating
Procedures (SOP's). The FDA, Federal Trade Commission and state
authorities also regulate the advertising of prescription and
over-the-counter products. The Company has obtained assurances
from its suppliers that all of the Company's products, (including
the products manufactured by the Company) meet all applicable
regulatory standards in all substantial respects.
Certain of the Company's pharmaceuticals products are sold
over-the-counter. These products are subject to FDA regulations
known as monographs, which specify permissible active
ingredients, labeling and indications. The monographs are
subject to change. No assurance can be given that future FDA
enforcement or regulatory decisions or changes to monographs will
not hamper the Company's marketing efforts or render the
Company's products unlawful for commercial sale, causing the
Company to withdraw its products from the marketplace or spend
substantial funds reformulating the products.
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<PAGE>
Specifically, the Company's DECONAMINE(R) product line,
which currently has prescription status, falls under these
monographs. Once a final monograph is issued by the FDA with
respect to a product, the product historically can remain as a
prescription product for up to one additional year. The Company
anticipates that final monographs for the Company's DECONAMINE(R)
product line, thereby converting the product line from
prescription status to over-the-counter status, are expected to
be issued by the FDA after April 1998. The Company currently
intends to continue to market and distribute its DECONAMINE(R)
line of products as prescription products for as long as it may
lawfully continue to do so. The Company is presently exploring
its marketing and distribution strategy relating to its
DECONAMINE(R) product line after final monographs covering these
products are issued, and, as such, it is not currently possible
for the Company to predict how its operations and financial
condition will be affected, or whether it will have resources
sufficient to aggressively market the DECONAMINE(R) line of
products, if, and when, this product line is converted from
prescription status to over-the-counter status.
Further, the Company is required to file an ANDA with the
FDA for its DECONAMINE(R) SR product, which is expected to
maintain the prescription status of this product beyond the final
monograph. The cost of this application is approximately
$900,000. The Company has entered into an agreement with Phoenix
International to perform the clinical studies required for the
issuance of the ANDA. As of the date of this Prospectus, the
Company has paid approximately $180,000 with respect to this
project. The project is expected to be completed and submitted
to the FDA during 1998. Completion of the research and
development project is subject, however, to the Company's either
generating sufficient cash flow from operations to fund the same
or obtaining requisite financing from outside sources, of which
there can be no assurance. Therefore, the Company cannot at this
time reasonably anticipate the timing of the expenditure of funds
for these purposes. The inability of the Company to further
develop and/or file the necessary ANDA for DECONAMINE(R) SR would
have a material adverse effect on the Company's business.
The Company currently is the registered holder of one New
Drug Application for PAMINE(R) and two ANDA's for TYZINE(R) and
CARMOL(R) HC. These applications, approved by the FDA, permit
companies to market products either considered by the FDA to be
new drugs or drugs previously approved by the FDA.
U.S. Federal and state governments continue to seek means to
reduce costs of Medicare and Medicaid programs, including
placement of restrictions on reimbursement for, or access to,
certain drug products. Major changes were made in the Medicaid
program under the Omnibus Budget Reconciliation Act of 1990. As
a result, the Company entered into a Medicaid Rebate Agreement
("Rebate Agreement") with the U.S. Government. Pursuant to the
Rebate Agreement, in order for federal reimbursement to be
available for prescription drugs under state Medicaid plans, the
Company must pay certain statutorily-prescribed rebates on
Medicaid purchases (approximately 11%). In most other developed
markets in which the Company's products are marketed and sold,
governments exert controls over pharmaceutical prices either
directly or by controlling admission to, or levels for,
reimbursement by government health programs. The nature of such
controls and their effect on the pharmaceutical industry varies
greatly from country to country.
The statutes and regulations that govern the Company's
business and activities are subject to change, and current
political and public interest in pharmaceutical products may lead
to changes in federal and state law that may affect the Company
and the way it does business. Management cannot anticipate what
effect, if any, such legislation may have on the Company's
operations.
PATENTS AND TRADEMARKS
The products currently sold by the Company, with the
exception of LUBRIN(R) and TRANS.VER.SAL(R), are not patented and
the Company does not currently intend to apply for patents for
its products. Products with benefits similar to those marketed
by the Company could easily be developed by other companies.
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<PAGE>
The LUBRIN(R) and TRANS.VER.SAL(R) United States patents
expire on August 31, 1999 and October 18, 2005, respectively.
Patents maintained by the Company for LUBRIN(R) and
TRANS.VER.SAL(R) in other countries have various expiration
dates.
The Company owns all trademarks associated with each of its
products and owns and maintains national and international
trademark registrations, or common law rights, on all of its
material products. No assurance can be given as to the extent or
scope of the trademarks or other proprietary protection secured
by the Company on its products. To the Company's knowledge, none
of the trademarks owned by the Company infringe on any trademarks
owned or used by others.
HUMAN RESOURCES
As of September 30, 1997, the Company employed approximately
81 full and 39 part-time associates. The Company believes that
its relationship with its associates is good.
SCIENTIFIC ADVISORS
The Company has formed a group of scientific advisors (the
"Scientific Advisors") having extensive experience in the areas
in which the Company markets its products to advise the Company
concerning long-range planning and development. The following
sets forth information with respect to the Company's Scientific
Advisors:
Myren Arlen, M.D. is an oncologist and tumorologist with
offices in Great Neck, New York. Internationally known, Dr.
Arlen has authored over 80 publications and two textbooks in
oncology, tumorology and cancer surgery. Dr. Arlen is a graduate
of Down State Medical School of the State University of New York
("SUNY").
Alan M. Goldberg, Ph.D., is a professor of toxicology, a
director of the Center for Alternatives to Animal Testing and the
Associate Dean for Corporate Affairs at the Johns Hopkins School
of Public Health. Dr. Goldberg's expertise is in the use of
non-animal methods in product safety evaluation. Dr. Goldberg
has authored or edited over 100 publications and 15 books. Dr.
Goldberg is a graduate of the Arnold and Marie Schwartz College
of Pharmacy and Health Sciences and received his Ph.D. from the
University of Minnesota.
Cory A. Golloub, M.D., is a doctor of internal medicine and
pediatrics currently practicing in Montville, New Jersey. Dr.
Golloub received his B.S. from SUNY Stony Brook and his M.D. from
the University of Medicine, Tampico, Mexico with postgraduate
affiliations with SUNY Downstate - Brookdale Hospital and UMDNJ -
New Jersey Medical School. Dr. Golloub is currently affiliated
with UMDNJ-NJMS, University Hospital and Chilton Memorial
Hospital in New Jersey.
Stephen M. Gross, Ed.D., is Dean of the Arnold and Marie
Schwartz College of Pharmacy & Health Sciences, and of the School
of Health Professions, Long Island University. Mr. Gross was
awarded a B.S. degree in pharmacy in 1960, and earned his M.A.
and Ed.D. degrees in college and university administration in
1969 and 1975, respectively, from Columbia University. Mr.
Gross' expertise is in the area of pharmacy administration, where
he has authored numerous articles on a variety of subjects,
including cost-effectiveness of drug therapy, pharmaceutical
advertising, and other educational and pharmacy practice topics.
Mr. Gross is also a member of the New York State Board of
Pharmacy.
Anthony LaVia has held many management positions during his
career and retired as Vice President of the Convatec Division of
Squibb which specialized in the development and sale of ostomy
products. Mr. LaVia was the developer of many of the Squibb
products generally characterized as the beginning of modern
pharmacy. After his retirement Mr. LaVia served as a consultant
to Dr. Albert Fleischner, an officer of the Company, at Roberts
Pharmaceutical, Inc. in the area of pharmaceutical development.
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<PAGE>
Peter Pugliese, M.D. is internationally recognized for his
expertise in the area of skin care and skin physiology. Dr.
Pugliese maintains offices in Reading, Pennsylvania and has
received many awards for his outstanding work in this field. Dr.
Pugliese is the Chief Executive Officer of Milmark Research, a
company devoted to skin research and contract manufacturing of
topical products. Dr. Pugliese is a graduate of University of
Pennsylvania School of Medicine.
Sheldon Rabin, M.D. is an ophthalmologist who specializes in
the treatment of glaucoma. Dr. Rabin maintains offices in New
York City. Dr. Rabin has received numerous awards for these
accomplishments and is currently involved in cancer vaccine
research. Dr. Rabin is a graduate of Northwestern University.
Bhogilal B. Sheth, Ph.D. is a professor in the Department of
Pharmaceutical Sciences, College of Pharmacy, University of
Tennessee at Memphis. Dr. Sheth received his B. Pharm. degree at
Gujerat University and M.S. and Ph.D. degrees at the University
of Michigan. Dr. Sheth currently holds a position as Director,
Parenteral Medications Laboratories, at the University of
Tennessee, Memphis.
Mitchell J. Spirt, M.D. is a doctor of internal medicine
currently practicing in California and a Clinical Professor in
Medicine at the University of California at Los Angeles.
Dr. Spirt received his B.S. from University Center of New York at
Binghamton and received his M.D. from Mount Sinai Medical Center
in New York.
Gerald N. Wachs, M.D. is a doctor of dermatology currently
practicing in Millburn, New Jersey. Dr. Wachs received his B.S.
and M.D. from the University of Illinois. Dr. Wachs is currently
affiliated with St. Barnabas Hospital and Overlook Hospital in
New Jersey and is a consulting dermatologist for the New Jersey
Nets and New Jersey Devils.
Each of the Company's Scientific Advisors, over time, has
been or will be granted options to purchase shares of the
Company's Class A Common Stock. All options granted to the
Scientific Advisors are exercisable at the fair market value of
the Company's Class A Common Stock as of the date of grant. To
date, no options have been exercised by the Company's Scientific
Advisors. Each Scientific Advisor will be compensated by the
Company for his time and reasonable expenses should he provide
services to the Company.
ENVIRONMENTAL MATTERS
On April 8, 1994, the Company was apprised by the NYSDEC
that Doak's current leased manufacturing facility located on
adjoining parcels at 67 Sylvester Street and 62 Kinkel Street,
Westbury, New York, is located in the New Cassel Industrial Area,
which had been designated by the NYSDEC on the Registry of
Inactive Hazardous Waste Sites. The real property on which Doak's
current manufacturing facility is situated is owned by and leased
to the Company by Dermkraft, Inc., an entity owned by the former
controlling shareholders and officers of Doak.
On February 7, 1995, the Company was apprised by the NYSDEC
that the current manufacturing facility will be excluded from the
Registry. By letter dated April 21, 1995, the NYSDEC notified
the Company that it intended to investigate the Company's current
manufacturing facility to determine if hazardous substances had
previously been deposited on that property. By letter dated
October 24, 1995, NYSDEC notified Dermkraft, Inc. that the
Company's current manufacturing facility is included in or near
an inactive hazardous waste site described as "Kinkel and
Sylvester Streets" and that NYSDEC intends to conduct a
Preliminary Site Assessment to study the site and immediate
vicinity. The Company has been advised that NYSDEC has made a
preliminary determination to include the 62 Kinkel Street portion
of the current manufacturing facility on the Registry and that
the 67 Sylvester Street portion of the facility will not be
included, but those determinations could be changed before they
are finalized. Thereafter, by letter dated May 3, 1996 and
addressed to Dermkraft, Inc., the NYSDEC notified Dermkraft that
the site at 62 Kinkel Street has been listed on the Registry due
to the presence of TCE in soils and groundwater due to the use of
TCE by LAKA Tools and Stamping and LAKA Industries, a former
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<PAGE>
tenant from 1971 through 1984. The NYSDEC documents refer to
Doak as the current tenant but do not refer to any activities of
Doak or the Company as a basis for the listing in the Registry.
The Company cannot at this time determine whether the cost
associated with the investigation and required remediation, if
any, of the current manufacturing facility will be material.
With respect to the former manufacturing facility on Magnolia
Avenue, which remains designated by the NYSDEC as part of the
Registry, management believes, but no assurance can be given,
that Doak will not be obligated to contribute to any remediation
costs, if any are required.
PROPERTIES
The Company leases approximately 14,120 square feet of
office and warehouse space at 383 Route 46 West, Fairfield, New
Jersey, pursuant to a lease expiring on July 31, 1998 with Daniel
Glassman, the Company's Chairman and President, and Iris
Glassman, Mr. Glassman's wife and Treasurer of the Company. This
lease is renewable at the Company's option. The Company
currently intends to renew this lease for an additional two year
term. Rent expense, including the Company's proportionate share
of real estate taxes, was approximately $176,000 and $173,000 for
Fiscal 1996 and Fiscal 1995, respectively, and is anticipated to
be approximately $194,000 for Fiscal 1997.
In connection with the Doak acquisition, Doak entered into a
three year lease with the former principal stockholders of Doak
for the Doak manufacturing facility (the "Doak Lease"). The Doak
manufacturing facility is located in Westbury, New York and
consists of approximately 11,000 square feet. The Doak Lease
runs through February 1999. Pursuant to the Doak Lease, rent
expense is approximately $60,000 per annum.
During Fiscal 1996 and Fiscal 1995, Doak leased additional
warehouse space in separate facilities in Westbury, New York at a
cost (based upon square footage utilized) of $55,400 and $32,400
per annum, respectively.
During Fiscal 1996 and Fiscal 1995, the Company rented 760
square feet of office space in Chicago, Illinois at cost of
$10,000 per annum.
The Company believes that the aforementioned facilities are
sufficient to meet the Company's current, and presently
anticipated, future needs.
The Company has also entered into a distribution arrangement
with a third party public warehouse located in Tennessee to
warehouse and distribute substantially all of the Company's
products. This arrangement provides that the Company will be
billed based on invoiced sales of the products distributed by
such party, plus certain additional charges.
LEGAL PROCEEDINGS
The Company and Doak have been named defendants in a lawsuit
filed in the Supreme Court of the State of New York, County of
Nassau, Index Number 96-32988, Captioned Michael Schiliro,
-----------------
individually and as the father and natural guardian of Joseph M.
----------------------------------------------------------------
Schiliro, a minor vs. Erick L. Roland, Doak Dermatologics and
-------------------------------------------------------------
Bradley Pharmaceuticals. Inc. This lawsuit was commenced on
-----------------------------
November 29, 1996. The complaint alleges, among other things,
that the Company and Doak were negligent in their hiring and
supervision of one of their employees. The employee in question,
in turn, allegedly committed an assault against one of the
plaintiffs to this litigation. The complaint seeks $600,000 of
compensatory damages from the Company and Doak and punitive
damages of $1,000,000. The Company believes that it has
meritorious defenses to the allegations brought against it.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as
follows:
Age Position(s)
--- -----------
Daniel Glassman 55 Chairman of the Board,
President and Chief Executive
Officer
Albert Fleischner, Ph.D. 56 Vice President,
Pharmaceutical Research and
Development
Alan V. Gallantar 39 Senior Vice President -
Director of Corporate
Planning and Development
Iris S. Glassman 54 Treasurer and Director
Gene Goldberg 59 Senior Vice President -
Marketing & Business Planning
David Hillman 56 Secretary and Director
Lawrence Lenz 50 Vice President - Finance and
Chief Financial Officer
Dr. Philip McGinn 71 Director
Alan G. Wolin, Ph.D. 64 Director
Daniel Glassman is the founder of the Company and has served
as its Chief Executive Officer since the Company's inception in
January 1985. Mr. Glassman has also served as the Company's
Chairman of the Board from January 1985 through April 1995 and
from June 2, 1997 through the date of this Prospectus. Mr.
Glassman has also served as President of the Company since
February 1991. Mr. Glassman, a registered pharmacist, is also
Chairman of the Board of Banyan Communications Group, Inc., a
communications company controlled by Mr. Glassman ("Banyan").
Banyan encompasses two marketing research organizations (Danis
Research and Hospital Research Associates) and an advertising
agency (Daniel Glassman Advertising). Mr. Glassman has operated
these companies for more than the last eighteen years. Mr.
Glassman was previously Vice President for Client Services for
Medicus Communications, Inc., where he directed marketing
programs for pharmaceutical companies such as Procter & Gamble,
Rorer, Schering-Plough Corporation, and Merrill-Dow, Inc. Mr.
Glassman is the husband of Iris Glassman, the Treasurer and a
director of the Company. Mr. Glassman is also Chairman of the
Board, President and Chief Executive Officer of Doak, Bradley
Pharmaceuticals (Canada), Inc. and Bradley Pharmaceuticals,
Overseas, Ltd., Inc., each a subsidiary of the Company.
Iris S. Glassman has served as Treasurer of the Company
since its inception in 1985. Mrs. Glassman has also served as a
director of the Company from January 1985 through April 1995 and
from June 2, 1997 through the date of this Prospectus. Mrs.
Glassman is the wife of Daniel Glassman and has fifteen years of
diversified administrative and financial management experience,
including serving in the capacity of Secretary of Banyan.
Albert Fleischner, Ph.D. has served as Vice President,
Pharmaceutical Research and Development of the Company since
August 1994. From 1988 to 1994, Dr. Fleischner served as
Director, Pharmaceutics and Chemical Process Development, at
Roberts Pharmaceuticals Corp., a New Jersey based pharmaceuticals
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<PAGE>
company. Prior thereto, Dr. Fleischner served in research and
development positions with Ford Laboratories and Schering-Plough
Corporation. Dr. Fleischner also owned and operated Fleischner
Pharmacies, a community drug chain of four stores from June 1963
to April 1973.
Alan V. Gallantar, a certified public accountant, has served
as Senior Vice President - Director of Corporate Planning and
Development of the Company since May 1, 1997. From January 1994
through April 30, 1997, Mr. Gallantar served as Chief Financial
Officer of the Company and from September 1992 through January
1994, Mr. Gallantar served as Controller of the Company. From
1991 to 1992, Mr. Gallantar served as a financial consultant to
the Company. From 1989 to 1991, Mr. Gallantar served as a
Divisional Controller for Paine Webber, Inc. and prior thereto in
several financial positions with Chase Manhattan Bank, N.A.,
Philip Morris Inc. and Deloitte & Touche.
Gene L. Goldberg has served as Senior Vice President -
Marketing and Business Planning of the Company since January 1,
1997. For more than the past five years, Mr. Goldberg has also
served as Executive Vice President of Daniel Glassman
Advertising, a division of Banyan.
David Hillman has served as Secretary of the Company since
1985 and as a director of the Company from January 1990 through
April 1995 and from April 29, 1997 through the date of this
Prospectus. For more than the past five years, Mr. Hillman has
also served as a director of Banyan and since 1990, as President
of Banyan's Health Care Division and Treasurer of Banyan. Mr.
Hillman, a registered pharmacist, has also served as President of
Hospital Research Associates, a division of Banyan engaged in the
business of conducting market research for the pharmaceutical
industry since 1983. Mr. Hillman has over sixteen years of
market research, sales and marketing experience, including
product group manager for Lederle Laboratories.
Lawrence Lenz has served as Chief Financial Officer and Vice
President - Finance of the Company since May 1, 1997 and February
11, 1997, respectively. For more than 16 years prior thereto,
Mr. Lenz served as Vice President of C.M. Offray & Sons, Inc., a
New Jersey based manufacturer and distributor of ribbons. Prior
to his affiliation with C.M. Ofray & Sons, Inc., Mr. Lenz served
as Senior Financial Manager of General Foods.
Dr. Philip McGinn has served as a director of the Company
since December 1996. Since 1984, Dr. McGinn has also served as
President of Worldwide Marketing and Translation Services, Inc.,
a New Jersey based company providing consulting services in new
product and company acquisitions, marketing, market analysis,
promotional planning, sales training, management development and
business, educational and translation services. Dr. McGinn also
served as Associate Dean, School of Health Professions, Long
Island University from 1990 to 1996.
Alan G. Wolin, Ph. D., has served as a director of the
Company since May 12, 1997. Since 1988, Dr. Wolin has served as
an independent consultant to various companies in the food, drug
and cosmetic industries. Between 1962 and 1987, Dr. Wolin served
M&M/Mars, the world's largest candy company, in various
capacities, including Director of Consumer Quality Assurance and
Quality Coordination. In his capacity as Director of Consumer
Quality Assurance and Quality Coordination, Dr. Wolin was
responsible for ensuring consumer quality and public health
issues relating to M&M/Mars' products.
Directors of the Company are scheduled to hold office until
the next Annual Meeting of Stockholders of the Company and until
their respective successors shall have been duly elected and
qualified.
Significant Employees
---------------------
Gene Carpenter has served as Regional Sales Director of the
Company since January 1994. From May 1988 through December 1993,
Mr. Carpenter served as National Sales Manager of Poly
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Pharmaceuticals, Inc., a Mississippi based pharmaceutical
company. Prior thereto, Mr. Carpenter served as Regional Sales
Manager of Savage Laboratories, Inc., Houston, Texas.
Robert Corbo has served as Quality Assurance/Control
Director of the Company since March 1993. From 1989 to 1993, Mr.
Corbo served as Quality Assurance/Control manager for Par
Pharmaceuticals, a New York based generic pharmaceutical
manufacturer.
Brian Newby has served as Controller of the Company since
June 1997. From April 1994 to June 1997, Mr. Newby served as the
Company's in-house accountant. From July 1991 to April 1994, Mr.
Newby served as Controller for Wilpage Medical, a Caldwell, New
Jersey based medical company.
Glenn Wilson has served as plant supervisor at the Company's
Doak Dermatologics, Inc. subsidiary since April 1994. From 1990
to 1994, Mr. Wilson served as production manager for Gemini
Pharmaceuticals, a New York based pharmaceutical company.
Maurice Woosley has served as President and Vice President
of the Company's international division since January 1997. From
May 1996 to December 1996, Mr. Woosley served as Vice President
of the Company's international division. From November 1994 to
April 1996, Mr. Woosley served as Worldwide Marketing Director of
Datascope, Inc., a New Jersey based medical device manufacturer.
From September 1990 to October 1994, Mr. Woosley served as Global
Marketing Director for Davis & Geck, a New Jersey based medical
product manufacturer.
EXECUTIVE COMPENSATION
Summary Compensation Table
--------------------------
The following table shows all the cash compensation paid by
the Company, as well as certain other compensation paid or
accrued during the fiscal years ended December 31, 1996, 1995 and
1994, to Daniel Glassman, the Company's President and Chief
Executive Officer, and Alan V. Gallantar, who served as the
Company's Corporate Vice President and Chief Financial Officer
during the fiscal years ended December 31, 1996, 1995 and 1994.
No other executive officer of the Company earned total annual
salary and bonus for Fiscal 1996 in all capacities in which such
person served the Company in excess of $100,000. There were no
restricted stock awards, long-term incentive plan payouts or
other compensation paid during Fiscal 1996 to the executive
officers named in the following table except as set forth below:
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- ---- ------
Daniel Glassman 1996 $122,500
President and 1995 $ 75,200
Chief Executive 1994 $ 67,000
Officer
Alan V. Gallantar 1996 $118,600
Corporate Vice President and 1995 $ 54,000
Chief Financial 1994 $ 32,900
Officer(2)
ANNUAL LONG-TERM
COMPEN- COMPENSATION
SATION AWARDS
------ --------------------
NAME AND PRINCIPAL SECURITIES UNDERLYING
------------------ ---------------------
POSITION BONUS OPTIONS(1)
-------- ----- ----------
Daniel Glassman -0- 404,500(3)
President and -0- 359,589(4)
Chief Executive -0- 300,000
Officer
Alan V. Gallantar -0- 44,000(5)
Corporate Vice -0- -0-
President and
Chief Financial -0- 23,000
Officer(2)
__________________
(1) All of these options are exercisable into shares of Class A
Common Stock.
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<PAGE>
(2) Mr. Gallantar was promoted to the office of Senior Vice
President - Director of Corporate Planning and Development
of the Company on May 1, 1997. Mr. Gallantar ceased serving
as the Company's Corporate Vice President and Chief
Financial Officer as of May 1, 1997.
(3) Of these shares, 31,500 shares underlie options granted on
December 5, 1996 to replace a like number of options
previously granted to Mr. Glassman which expired by their
terms. These options are exercisable at any time prior to
December 4, 2001 at an exercise price of $0.825 per share,
110% of the fair market value for shares of Class A Common
Stock on the date of grant. The remaining 373,000 shares
underlie options which were repriced by the Company on April
18, 1996. These repriced options vest at various times
through 1998 and are exercisable at various times through
2000 at an exercise price of approximately $1.44 per share,
110% of the fair market value for shares of Class A Common
Stock on the date of repricing. See "Report on Repricing of
Options" below.
(4) Of these shares, 341,589 shares underlie options granted on
December 5, 1995. These options are exercisable at any time
prior to December 4, 2000 at an exercise price of $1.16875
per share, 110% of the fair market value for shares of Class
A Common Stock on the date of grant. These options were
granted by agreement with the Company in consideration for
Mr. Glassman's agreement to retire 341,589 shares of Class B
Common Stock previously distributed to him. The remaining
18,000 shares underlie options granted on September 12,
1995, which options expire during 2000 and vest in equal,
one third increments in 1996, 1997 and 1998. The exercise
price for these 18,000 options was originally $3.7125 per
share, approximately 110% of the fair market value for
shares of Class A Common Stock on the original date of
grant. These 18,000 options comprise a portion of the
373,000 options owned by Mr. Glassman which were repriced by
the Company on April 18, 1996. See "Report on Repricing of
Options" below.
(5) These shares underlie options which were repriced by the
Company on February 21, 1996. These repriced options (of
which approximately 86% have already vested) vest at various
times through December 30, 1997 and are exercisable at an
exercise price of $1.47 per share, the fair market value for
shares of Class A Common Stock on the date of repricing.
See "Report on Repricing of Options" below.
Option Grants in Fiscal 1996
----------------------------
The following table sets forth information concerning
outstanding options to purchase shares of the Company's Class A
Common Stock granted during Fiscal 1996 by the Company to Daniel
Glassman, the only executive officer of the Company granted
options during Fiscal 1996. Neither options to purchase shares
of Class B Common Stock nor stock appreciation rights were
granted by the Company during Fiscal 1996. The exercise prices
for all options reported below are not less than 110% of the per
share market prices for Class A Common Stock on their dates of
grant.
INDIVIDUAL GRANTS
-----------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED 1996(1) ($/SH) DATE
---- ---------- ---------- ------- ----------
Daniel 31,500 3.94% $0.825 12/04/01
Glassman 373,000(2) 46.70% $1.440 12/04/00
________________
(1) This figure includes 533,320 options previously granted to
employees which, at the election of the employee/optionees,
were repriced during Fiscal 1996.
(2) These shares underlie options that were repriced by the
Company on April 18, 1996. See "Report on Repricing of
Options" below.
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Aggregated Option Exercises in Fiscal 1996 and
Fiscal Year-End Option Values
-----------------------------------------------
The following table presents the value, on an aggregate
basis, as of December 31, 1996, of outstanding stock options held
by the executive officers of the Company listed in the Summary
Compensation Table above. No stock options were exercised by the
executive officers listed below during Fiscal 1996.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT
FISCAL YEAR-END
-------------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
Daniel Glassman 634,089 112,000
Alan V. Gallantar 36,333 7,667
VALUE OF UNEXERCISED IN-THE
-MONEY OPTIONS AT
FISCAL YEAR-END(1)
---------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ------------ ------------
Daniel Glassman $64,646 $ -0-
Alan V. Gallantar $ -0- $ -0-
____________________
(1) Based on the closing sale price of $1.313 per share of Class
A Common Stock on December 31, 1996, as reported by NASDAQ.
Employment Contracts and
Termination of Employment and Change-in-Control Arrangements
------------------------------------------------------------
The Company does not have any employment contracts or
termination of employment or change-in-control arrangements with
any of its executive officers.
Compensation of Directors
-------------------------
Directors who are not officers or employees of the Company
receive a director's fee of $600 for each meeting of the Board of
Directors, or a committee thereof, attended by such director,
plus out-of-pocket costs. Directors who are also officers or
employees of the Company receive no additional compensation for
their services as directors.
On December 5, 1996, concurrently with Dr. Philip McGinn's
appointment as a director of the Company, Dr. McGinn was granted
options to purchase up to 15,000 shares of Class A Common Stock
of the Company. These options vest in three equal and annual
installments commencing on December 5, 1997 and expire on
December 4, 2006. These options are exercisable at $0.6875 per
share (the fair market value per share of Class A Common Stock as
of the date of grant).
On January 5, 1996, Mr. David Hillman was granted options to
purchase up to 53,568 shares of Class A Common Stock of the
Company at an exercise price of $1.1875 per share (the fair
market value per share of Class A Common Stock as of the date of
grant). These options vested immediately and expire January 4,
2006. These options were granted by agreement with the Company
in consideration for Mr. Hillman's agreement to retire 53,568
shares of Class B Common Stock previously owned by him.
On August 29, 1997, Alan G. Wolin, Ph.D., was granted
options to purchase up to 15,000 shares of Class A Common Stock
of the Company at an exercise price of $1.25 per share (the fair
market value per share of Class A Common Stock as of the date of
grant). These options vest in three equal and annual
installments commencing on May 12, 1998 and expire on May 11,
2007.
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Report on Repricing of Options
------------------------------
On February 16, 1996, the Board of Directors of the Company
agreed to reprice all outstanding stock options (consisting
solely of options outstanding under the Company's 1990 Stock
Option Plan, as amended) so that the exercise price of such
options would be recast to be the closing price of the Company's
Class A Stock as published in The Wall Street Journal on the day
-----------------------
the stock options were returned to the Company, if such options
were returned prior to 1:00 p.m., or the next days' closing price
as published in The Wall Street Journal if such options were
-----------------------
returned after 1:00 p.m. This repricing concluded on June 30,
1996. The weighted average exercise price of all repriced
options (after giving effect to the repricing) was approximately
$1.46. This repricing (during a period when the Company's Board
of Directors determined that the Company's stock price was
depressed) was authorized by the Board of Directors to provide,
among other things, an incentive for the Company's associates and
consultants to share in the Company's future growth and remain
with the Company.
The following table sets forth certain information regarding
options that were repriced by the executive officers of the
Company listed in the Summary Compensation Table above and the
directors of the Company.
NUMBER OF WEIGHTED AVERAGE WEIGHTED
OPTIONS EXERCISE PRICE AVERAGE PRICE
OPTIONEE REPRICED BEFORE REPRICING AFTER REPRICING
-------- -------- --------------- ---------------
Daniel Glassman 373,000 $3.72 $1.44
Alan V. Gallantar 44,000 $2.72 $1.47
Iris S. Glassman 145,192 $3.41 $1.31
David Hillman 28,750 $3.17 $1.54
Alan G. Wolin 2,300 $3.09 $1.69
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of
September 30, 1997, regarding the ownership of the Company's
Class A and Class B Common Stock by (i) each director of the
Company, (ii) the executive officers of the Company named in the
Summary Compensation Table set forth elsewhere in this
Prospectus, (iii) each beneficial owner of more than five percent
of the Class A and Class B Common Stock of the Company known by
management and (iv) all directors and executive officers of the
Company, as a group, and the percentage of outstanding shares of
Class A and Class B Common Stock beneficially held by them on
that date.
Since each share of Class B Common Stock may be converted at
any time by the holder into one share of Class A Common Stock,
the beneficial ownership rules promulgated under the Securities
Exchange Act of 1934, as amended, require that all shares of
Class A Common Stock issuable upon the conversion of Class B
Common Stock by any stockholder be included in determining the
number of shares and percentage of Class A Common Stock held by
such stockholder.
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<PAGE>
AMOUNT AND NATURE OF BENEFICIAL OWNER(1)(2)
-------------------------------------------
NAME OF ADDRESS OF CLASS A CLASS B
BENEFICIAL OWNER COMMON STOCK COMMON STOCK
------------------ ------------ ------------
Daniel Glassman 1,062,612(3) 311,736(4)
383 Route 46 West
Fairfield, NJ
Iris S. Glassman 214,706(5) 37,283(6)
383 Route 46 West
Fairfield, NJ
David Hillman 132,183(7) 43,610
383 Route 46 West
Fairfield, NJ
Phillip McGinn 6,000(8) -0-
383 Route 46 West
Fairfield, NJ
Alan G. Wolin 55,730(9) -0-
383 Route 46 West
Fairfield, NJ
Alan V. Gallantar 63,100(10) -0-
383 Route 46 West
Fairfield, NJ
Berlex 1,450,000 -0-
Laboratories, Inc.
110 East Hanover
Avenue
Cedar Knolls, NJ
All executive 1,668,003(3) 402,821(4)(6)
officers and (4)(5)
directors as a (6)(7)
group (9 (8)(9)
persons) (10)
PERCENT OF CLASS(2)
----------------------------------------
NAME OF ADDRESS OF CLASS A CLASS B
BENEFICIAL OWNER COMMON STOCK COMMON STOCK
------------------ ------------ -------------
Daniel Glassman
383 Route 46 West
Fairfield, NJ 11.70% 72.24%
Iris S. Glassman
383 Route 46 West
Fairfield, NJ 2.60% 8.64%
David Hillman
383 Route 46 West
Fairfield, NJ 1.61% 10.11%
Phillip McGinn
383 Route 46 West
Fairfield, NJ * -
Alan G. Wolin
383 Route 46 West
Fairfield, NJ * -
Alan V. Gallantar
383 Route 46 West -
Fairfield, NJ *
Berlex
Laboratories, Inc.
110 East Hanover
Avenue
Cedar Knolls, NJ 17.95% -
All executive
officers and
directors as a
group (9
persons) 17.46% 93.34%
____________________________
* Represents less than one percent.
(1) Unless otherwise indicated, the stockholders identified in
this table have sole voting and investment power with
respect to the shares beneficially owned by them.
(2) Each named person and all executive officers and directors,
as a group, are deemed to be the beneficial owners of
securities that may be acquired within 60 days through the
exercise of options, warrants or exchange or conversion
rights. Accordingly, the number of shares and percentage
set forth opposite each stockholder's name under the columns
"Class A Common Stock" includes shares of Class A Common
Stock issuable upon exercise of presently exercisable
warrants and stock options and shares of Class A Common
Stock issuable upon conversion of shares of Class B Common
Stock. The shares of Class A Common Stock so issuable upon
such exercise, exchange or conversion by any such
stockholder are not included in calculating the number of
shares or percentage of Class A Common Stock beneficially
owned by any other stockholder.
(3) Includes 311,736 shares issuable upon conversion of a like
number of shares of Class B Common Stock. Of these shares,
37,287 shares are owned indirectly by Mr. Glassman through
affiliates and 690,089 shares underlie presently exercisable
options owned by Mr. Glassman. Mr. Glassman's affiliates
have disclaimed beneficial ownership over all of these
shares. Mr. Glassman disclaims beneficial ownership over
shares and options owned by his wife, Iris S. Glassman.
(Footnotes continue on next page)
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<PAGE>
(4) Includes 26,098 shares owned indirectly by Mr. Glassman
through affiliates. Mr. Glassman's affiliates have
disclaimed beneficial ownership over these shares. Does not
include 16,403 shares beneficially owned by Iris S.
Glassman, Mr. Glassman's wife.
(5) Includes 37,283 shares issuable upon conversion of a like
number of shares of Class B Common Stock, 6,800 shares owned
indirectly by Mrs. Glassman through affiliates, 25,220
shares owned indirectly by Mrs. Glassman as trustee for her
children's trusts and 145,403 shares underlying presently
exercisable options. Mrs. Glassman disclaims beneficial
ownership over all shares beneficially owned by her husband,
Daniel Glassman.
(6) Includes 20,880 shares owned indirectly by Mrs. Glassman as
trustee for the Bradley Glassman 1995 Trust. Mrs. Glassman
disclaims beneficial ownership over all shares of Class B
Common Stock beneficially owned by her husband, Daniel
Glassman.
(7) Includes 43,610 shares issuable upon conversion of a like
number of shares of Class B Common Stock, 1,780 shares owned
indirectly by Mr. Hillman through an affiliate and 80,318
shares underlying presently exercisable options. Mr.
Hillman's affiliate has disclaimed beneficial ownership over
shares owned by it.
(8) Includes 5,000 shares underlying presently exercisable
options.
(9) Includes 13,533 shares underlying presently exercisable
options and 1,800 shares owned indirectly by Dr. Wolin
through affiliates.
(10) Includes 38,000 shares underlying presently exercisable
options and 25,000 shares owned indirectly by Mr. Gallantar
through an affiliate.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 1996 and 1995, the Company received
administrative support services (consisting principally of
advertising services, mailing, copying, data processing and other
office service) which were charged to operations from Banyan, an
affiliated company controlled by Daniel Glassman, the President
and Chief Executive Officer of the Company, amounting to
approximately $280,000 and $517,000, respectively. During Fiscal
1996 and Fiscal 1995, the Company paid Banyan $291,000, and
$440,000, respectively, for such services. At December 31, 1996,
$11,000 was due the Company from Banyan. At December 31, 1995,
there were no outstanding balances between the Company and
Banyan.
On December 31, 1990, the Company issued a promissory note
in the amount of $123,975 for the cumulative amounts of
previously issued demand loans made to the Company by Mr.
Glassman. This note was satisfied in its entirety in 1995.
In connection with the Company's satisfaction in June 1996
of the $1.86 million current liability then owning to Berlex, the
Company borrowed $100,000 from various trusts established for the
benefit of the children of Mr. Glassman and Iris S. Glassman, Mr.
Glassman's wife and Treasurer and a Director of the Company.
This $100,000 loan was repaid on September 30, 1996 together with
accrued interest at the rate of 16% per annum (approximately
$4,100).
The Company rents its Fairfield, New Jersey operating
facility from Daniel Glassman and Iris S. Glassman pursuant to a
lease expiring on July 31, 1998. This lease is renewable, at the
option of the Company, for an additional one year term. Rent
expense, including an allocated portion of real estate taxes, was
approximately $176,000 and $173,000, respectively, for Fiscal
1996 and Fiscal 1995, and is anticipated to be approximately
$194,000 for Fiscal 1997.
During Fiscal 1996 and Fiscal 1995, Daniel Glassman, the
Company's President and Chief Executive Officer also served as
Chief Executive Officer of Banyan. As such, Mr. Glassman
allocated a portion of his working time to the business of each
of the Company and Banyan (Mr. Glassman estimates that less than
5% of his time is spent on Banyan business). During Fiscal 1996
and Fiscal 1995, Mr. Glassman received compensation from the
Company and Banyan.
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<PAGE>
During Fiscal 1996 and Fiscal 1995, Alan V. Gallantar, the
Company's then Chief Financial Officer (and current Senior Vice
President and Director - Corporate Planning and Development) also
served as Chief Financial Officer of Banyan. As such, Mr.
Gallantar allocated a portion of his working time to the business
of each of the Company and Banyan (Mr. Gallantar estimates that
less than 5% of his time was spent on Banyan business). During
Fiscal 1995, renumeration paid to Mr. Gallantar by the Company
and Banyan was approximately $54,000 and $74,000, respectively.
The Company reimbursed Banyan for the costs of Mr. Gallantar's
services. Effective January 1, 1996, Mr. Gallantar began
deriving his compensation solely from the Company.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue up to 27,300,000 shares
of Common Stock, 26,400,000 shares of which have been designated
as Class A Common Stock and 900,000 shares of which have been
designated as Class B Common Stock, and 2,000,000 shares of
preferred stock, no par value per share (the "Preferred Stock").
As of September 30, 1997 there were issued and outstanding
8,079,798 shares of Class A Common Stock, 431,552 shares of Class
B Common Stock and no shares of Preferred Stock.
COMMON STOCK
Holders of Class A Common Stock and Class B Common Stock
have equal rights to receive dividends when, as and if declared
by the Board of Directors of the Company, out of funds legally
available therefor.
Holders of Class A Common Stock have one vote for each share
held of record and holders of Class B Common Stock have five
votes for each share held of record on all matters to be voted on
by stockholders, except for the election of directors. So long
as there are at least 325,000 shares of Class B Common Stock
issued and outstanding, holders of the Class B Common Stock,
voting as a separate class, have the right to elect a majority of
the directors of the Company (consisting of the sum of one plus
one-half of the total number of directors) (the "Class B
Directors") and may remove any Class B Director with or without
cause at any time and fill all vacancies among Class B Directors,
and the holders of Class A Common Stock and voting Preferred
Stock, if any, have the right to vote together as a single class
to elect the remainder of the directors of the Company (the
"Class A Directors") and may remove any Class A Director with or
without cause and fill vacancies among Class A Directors.
Holders of Class A Common Stock and Class B Common Stock do not
have cumulative voting rights and vote as one class on all other
matters requiring stockholder approval, except that under New
Jersey law the affirmative vote of a majority of the outstanding
shares of a class of capital stock, voting separately as a class,
is required for any amendment to the Company's Certificate of
Incorporation which would alter or change the powers, preferences
or special rights of such class of the Company's capital stock.
Holders of Common Stock are entitled upon liquidation of the
Company to share ratably in the net assets available for
distribution, subject to the rights, if any, of holders of any
Preferred Stock then outstanding. Shares of Common Stock are not
redeemable and have no preemptive or similar rights.
PREFERRED STOCK
The Board of Directors of the Company has the authority to
issue shares of Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any
series or the designation of such series, without further vote or
action by stockholders. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in
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<PAGE>
control of the Company without further action by stockholders and
may adversely affect the voting and other rights of the holders
of Common Stock. Further, the issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting
power of the holders of Common Stock, including the loss of
voting control to others. As of September 30, 1997, no shares of
Preferred Stock were outstanding and the Company had no plans to
issue any Preferred Stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The New Jersey Business Corporations Act Law (the "NJBCA")
provides that a corporation may limit the liability of each
director to the corporation or its stockholders for monetary
damages except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The Company's certificate
of incorporation provides for the elimination and limitation of
the personal liability of directors of the Company for monetary
damages to the fullest extent permitted by the NJBCA. In
addition, the certificate of incorporation provides that if the
NJBCA is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of
the directors shall be eliminated or limited to the fullest
extent permitted by the NJBCA, as so amended. The effect of this
provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of
the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including
breaches resulting from negligence or grossly negligent
behavior), except in the situations described in clauses (i)
through (iv) above. This provision does not limit or eliminate
the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a
breach of a director's duty of care. The certificate of
incorporation also provides that the Company shall, to the full
extent permitted by the NJBCA, as amended from time to time,
indemnify and advance expenses to each of its currently acting
and former directors, officers, employees and agents.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable.
ANTI-TAKEOVER PROVISIONS
The Company is subject to certain anti-takeover provisions
under the New Jersey Shareholders Protection Act (Sections
14A:10A-1 through 14A:10A-6 of the NJBCA). In general, under
this Act, a New Jersey corporation may not engage in any business
combination with any "interested stockholder" (a person that
owns, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation or is an affiliate of the
corporation and was the owner of 15% or more of the outstanding
voting stock), for a period of five years following the date such
stockholder became an interested stockholder, unless, generally,
(i) prior to such date the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder,
or (ii) on or subsequent to such date, the business combination
is approved by the board of directors and authorized at an annual
or special meeting of stockholders by at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
The restrictions imposed by this Act could have the effect of
discouraging, delaying or preventing a takeover of the Company,
which could otherwise be in the best interest of the Company's
stockholders, and have an adverse effect on the market price for
the Company's capital stock.
TRANSFER AGENT
The transfer agent for shares of the Company's capital stock
is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
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<PAGE>
PLAN OF DISTRIBUTION
The 1,450,000 shares of Class A Common Stock (the "Shares")
being registered in the Registration Statement of which this
Prospectus forms a part may be offered for resale by the Selling
Stockholder who was issued the Shares in private transactions
negotiated with the Company during December 1996 and September
1997. These Shares represent all shares of capital stock
beneficially owned by the Selling Stockholder. The Selling
Stockholder, however, owns warrants entitling it to purchase,
when permissible in accordance with applicable state corporate
law, up to an additional 750,000 shares of Class A Common Stock
at an exercise price of $1.25 per share.
Shares of the Company's Class A Common Stock are traded
currently on the Nasdaq National Market under the symbol "BPRX."
This Prospectus, as appropriately amended or supplemented,
may be used from time to time by the Selling Stockholder, or by
its pledgee, donee, transferee or other successor in interest,
who has received Shares and who wishes to offer and sell such
Shares in the public marketplace. The Company will receive none
of the proceeds from any such sales. The Selling Stockholder has
advised the Company that, prior to the date of this Prospectus,
it has not made any agreement or arrangement with any
underwriter, broker or dealer regarding the distribution and
resale of the Shares. If the Company is notified by the Selling
Stockholder that any material arrangement has been entered into
with an underwriter for the sale of the Shares, a supplemental
prospectus will be filed to disclose such of the following
information as the Company believes appropriate: (i) the name of
the participating underwriter; (ii) the number of the Shares
involved; (iii) the price at which such Shares are sold, the
commissions paid or discounts or concessions allowed to such
underwriter; and (iv) other facts material to the transaction.
The Company anticipates that the Selling Stockholder will
sell the Shares covered by this Prospectus through customary
brokerage channels, either through broker-dealers acting as
agents or brokers for the seller, or through broker-dealers
acting as principals, who may resell the Shares through the
Nasdaq National Market or through private sales or otherwise, at
market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The
Selling Stockholder may effect such transactions by selling its
Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of concessions or commissions
from the Selling Stockholder and/or the purchaser of the Shares
for whom such broker-dealer may act as agent (which compensation
may be in excess of customary commissions.) The Selling
Stockholder and any broker-dealer that participates with the
Selling Stockholder in the distribution of the Shares may be
deemed to be an underwriter and commissions received by them and
any profit on the resale of the Shares positioned by them might
be deemed to be underwriting discounts and commissions under the
Securities Act. In addition, any Shares covered by this
Prospectus that qualify for sale pursuant to Rule 144 under the
Securities Act may qualify thereunder rather than pursuant to
this Prospectus.
Sales of the Shares on the Nasdaq National Market may be by
means of a variety of methods, including without limitation, the
following: (i) a block trade in which a broker or dealer will
attempt to sell the Shares as agent, but may position and resell
a portion of the block as principal to facilitate the
transactions; (ii) purchases by a dealer as principal and resale
by such dealer for its account pursuant to this Prospectus; (iii)
ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (iv) face-to-face or other direct
transactions between the Selling Stockholder and purchasers
without a broker or other intermediary. In effecting sales,
brokers or dealers engaged by the Selling Stockholder may arrange
for other brokers or dealers to participate.
The Selling Stockholder is not restricted as to the price or
prices at which it may sell the Shares. Sales of the Shares at
less than market price may depress the market price of the
Company's Class A Common Stock. Moreover, the Selling
Stockholder is not restricted as to the number of Shares which
may be sold at any one time and the Selling Stockholder is
permitted to buy, from time to time, an unlimited number of
additional shares of Class A Common Stock in open market
transactions or otherwise.
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<PAGE>
The Company will pay all of the expenses incident to the
offer and sale of the Shares to the public by the Selling
Stockholder other than commissions and discounts of underwriters,
dealers or agents. There can be no assurance that the Selling
Stockholder will sell any or all of the Shares offered by it
hereunder.
Notwithstanding the foregoing, the Company and the Selling
Stockholder have entered into an agreement pursuant to which the
Selling Stockholder has agreed that prior to it offering for
sale, transfer or assignment any of the Shares in a private sale
(which shall be deemed to exclude sales pursuant to Rule 144
under the Securities Act) either through a sale on Nasdaq or on a
national securities exchange (an "Open Market Sale") or a sale at
which the price per share is determined or to be determined by an
agreement, written or otherwise, between the Selling Stockholder
and the prospective buyer of such Shares, not on Nasdaq or on a
national securities exchange ( an "Agreed Upon Sale"), (the
Shares to be offered for sale by the Selling Stockholder are
herein referred to as the "Offered Shares"), the Selling
Stockholder shall provide the Company with the opportunity to
purchase the Offered Shares at the Sales Price (as defined
below). The Company shall exercise such opportunity by making
payment of cash to the Selling Stockholder within five business
days from the Company's receipt of the Sales Notice (as defined
below) provided that the Company shall, at the Selling
Stockholder's request, provide prior to such payment evidence
reasonably satisfactory to the Selling Stockholder that (A) the
purchase of such Offered Shares by the Company will not
constitute a purchase in violation of applicable corporate or
other applicable law and (B) there will not occur within 91 days
after the date of such payment certain events of insolvency or
bankruptcy. In the event the Selling Stockholder makes such a
request, such five business day period shall be extended by such
time as is reasonably required for the Company to comply with (A)
and (B) above (but in no event more than two additional business
days). If the Company fails to pay for the Offered Shares within
five business days (as the same may be extended) of the Company's
receipt of the Sales Notice, the Selling Stockholder may sell
such Offered Shares during the next 30 days, in the case of an
Agreed Upon Sale, or 90 days in the case of an Open Market Sale,
free of any right whatsoever of the Company to purchase the
Offered Shares; provided however, that the sale of the Offered
Shares shall, on an Open Market Sale, be made on Nasdaq or on a
national securities exchange and in the event of an Agreed Upon
Sale be made at a price not less than the Offer Price (as defined
below). In the event the Selling Stockholder does not sell the
Offered Shares within such 30 or 90 day period, the above-
described rights continue to apply to any proposed private sale
by the Selling Stockholder of the Shares as if no Sales Notice
had been given. For purposes hereof, "Sales Price" means (i) in
the case of an Open Market Sale, the price per share which is
equal to the average of the bid and asked price published in the
Wall Street Journal on the business day before the Sales Notice
is sent by the Selling Stockholder to the Company (or if there is
no bid and asked price on such business day, on the most recent
day on which a bid and asked price had been published in the Wall
Street Journal) or (ii) in the case of an Agreed Upon Sale, the
price per share at which the Selling Stockholder proposes to sell
the Offered Shares (the "Offered Price"). The Sales Notice shall
be a written notice entitling the Company to purchase the Offered
Shares within such five business day period and may be sent to
the Company by fax, overnight mail (by federal express, DHL or
some other similar service), personal delivery and/or certified
mail, return receipt requested and, in the case of an Agreed Upon
Sale, contain the price per share at which the Selling
Stockholder proposes to sell the Offered Shares. The Company's
right to buy the Offered Shares shall not apply if the Company's
Class A Common Stock is not then listed on Nasdaq or any national
securities exchange.
LEGAL MATTERS
The validity of the securities being offered hereby will be
passed upon for the Company by Reid & Priest LLP, New York, New
York.
-44-
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of
December 31, 1996 and 1995, included in this Prospectus have been
so included in reliance on the report of Grant Thornton LLP,
independent accountants, given on the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration
Statement on Form SB-2 (the "Registration Statement") under the
Securities Act with respect to the securities offered by this
Prospectus. This Prospectus, filed as part of such Registration
Statement, does not contain all of the information set forth in,
or annexed as exhibits to, the Registration Statement, certain
parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed
therewith, which may be inspected without charge at the office of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New
York 10048. Copies of the Registration Statement may be obtained
from the Commission at its principal office upon payment of
prescribed fees. Statements contained in this Prospectus as to
the contents of any contract or other document are not
necessarily complete and, where the contract or other document
has been filed as an exhibit to the Registration Statement, each
such statement is qualified in all respects by reference to the
applicable document filed with the Commission.
-45-
<PAGE>
============================== ==============================
NO DEALER, SALESPERSON OR
OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS, AND, IF 1,450,000 SHARES OF
GIVEN OR MADE, SUCH INFORMATION CLASS A COMMON STOCK
OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO
BUY ANY OF THESE SECURITIES IN
ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
EXCEPT WHERE OTHERWISE
INDICATED, THIS PROSPECTUS
SPEAKS AS OF THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE
HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE BRADLEY
COMPANY SINCE THE DATE HEREOF. PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page
----
Prospectus Summary............ 3
Risk Factors.................. 5
Use of Proceeds...............10
Dividend Policy...............10
Price Range of Class A
Common Stock.................11
Management's Discussion
and Analysis of ----------
Financial Condition PROSPECTUS
and Results of ----------
Operations..................11
Business......................18
Management....................33
Principal Stockholders........38
Description of Securities.....41
Plan of Distribution..........43
Legal Matters.................44
Experts.......................45
Additional Information........45
Index to Financial
Statements..................F-1
-----------
UNTIL o , 1997 (90 DAYS
AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT o , 1997
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================== ==============================
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Bradley Pharmaceuticals, Inc. and Subsidiaries
Report of Independent Certified Public Accountants . . . . F-2
Consolidated Balance Sheets at December 31, 1996
and 1995 and June 30, 1997 (unaudited) . . . . . . . . . F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1996 and 1995
and the Six Months Ended June 30, 1997 and
1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Shareholders Equity for the
Years Ended December 31, 1996 and 1995 and the
Six Months Ended June 30, 1997 (Unaudited) . . . . . . . F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995
and the Six Months Ended June 30, 1997 and
1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . F-9 - F-34
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Bradley Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of
Bradley Pharmaceuticals, Inc. and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the two years in
the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Bradley Pharmaceuticals, Inc. and Subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of
their operations, and their consolidated shareholders equity
and their consolidated cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As described in Note B, the Company has a working capital
deficit of $2,829,000 at December 31, 1996. The Company
is obligated to pay approximately $2.9 million through January 1998,
to Berlex Laboratories, Inc. under a product acquisition agreement
(Note C). These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note B. The consolidated
financial statements do not include any adjustments that might result
from this uncertainty.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Parsippany, New Jersey
March 13, 1997
F-2
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -----------
ASSETS 1995 1996 1997
----------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . $ 556,064 $ - $ 650,903
Accounts receivable, net of
allowance for doubtful
accounts of $71,000 in 1996,
$114,000 in 1995 and $65,000
in 1997 . . . . . . . . . . . . 2,254,757 2,736,037 1,974,632
Refundable income taxes . . . . . 1,764,256 - -
Inventory . . . . . . . . . . . . 1,671,967 1,057,985 958,823
Prepaid samples and materials . . 2,255,597 1,681,199 1,400,019
Prepaid expenses and other . . . . 111,376 52,984 177,216
----------- ----------- -----------
Total current assets . . . . . 8,614,017 5,528,205 5,161,593
PROPERTY AND EQUIPMENT - AT COST,
less accumulated depreciation of
$900,000 in 1996 and $682,000 in
1995 . . . . . . . . . . . . . . . 570,195 343,428 280,405
INTANGIBLE ASSETS, NET . . . . . . . 17,715,737 14,831,536 14,164,980
----------- ----------- -----------
$26,899,949 $20,703,169 $19,606,978
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -----------
LIABILITIES AND 1995 1996 1997
SHAREHOLDERS' EQUITY ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term
debt . . . . . . . . . . . . . . $ 4,949,633 $ 3,444,569 $ 2,998,569
Accounts payable . . . . . . . . . 3,787,112 2,035,448 1,718,028
Accrued expenses . . . . . . . . . 4,805,336 2,683,712 2,183,493
Income taxes payable . . . . . . . - 193,276 301,441
----------- ----------- -----------
Total current liabilities . . . . 13,542,081 8,357,005 7,201,531
LONG-TERM DEBT, less current
maturities . . . . . . . . . . . . 4,491,050 530,964 326,292
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY
Preferred stock, no par value;
authorized, 2,000,000 shares;
issued - none . . . . . . . . . - - -
Common Stock, Class A, no par
value; authorized, 26,400,000
shares; issued, 7,692,267
shares in 1996 and 1997 and
6,780,267 shares in 1995 . . . 13,185,990 13,970,240 13,970,240
Common Stock, Class B, no par
value; authorized, 900,000
shares; issued and
outstanding, 431,552 shares
in 1996 and 1997 and 495,443
shares in 1995 . . . . . . . . 845,448 845,448 845,448
Investment in ITG Laboratories,
Inc. . . . . . . . . . . . . . . (565,625) - -
Treasury stock, Class A, at cost
(57,336 shares at
June 30, 1997) . . . . . . . . (78,415)
Accumiulated deficit . . . . . . (4,598,995) (3,000,488) (2,658,118)
----------- ----------- -----------
8,866,818 11,815,200 12,079,155
----------- ----------- -----------
$26,899,949 $20,703,169 $19,606,978
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
-------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales . . . . . . . $10,621,061 $12,769,266 $6,908,499 $7,373,970
Cost of sales . . . . . 3,960,337 3,311,313 1,681,040 1,807,376
----------- ----------- ---------- ----------
6,660,724 9,457,953 5,227,459 5,566,594
----------- ----------- ---------- ----------
Selling, general and
administrative
expenses . . . . . . . 12,861,758 6,947,871 3,660,007 4,011,810
Depreciation and
amortization . . . . . 1,689,987 1,855,141 912,179 806,064
Other income -
litigation
settlement,net of
expenses . . . . . . . - (1,645,132) - -
Interest expense, net . 526,244 551,566 340,749 182,600
----------- ----------- ---------- ----------
15,077,989 7,709,446 4,912,935 5,000,474
----------- ----------- ---------- ----------
Income (loss) before
income taxes . . . . . (8,417,265) 1,748,507 314,524 566,120
Income tax (expense)
benefit . . . . . . . 1,496,024 (150,000) - 223,750
----------- ----------- ---------- ----------
NET INCOME (LOSS) . . $(6,921,241) $ 1,598,507 $ 314,524 $ 342,370
=========== =========== ========== ==========
Weighted average 7,348,975 7,175,348 7,183,354 8,098,251
shares outstanding . . =========== =========== ========== ==========
Net income (loss) per
common share
Primary . . . . . . $(.94) $.22 $.04 $.04
===== ==== ==== ====
Fully diluted . . . $(.94) $.22 $.04 $.04
===== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1996 and 1995
Class A Class B
common stock, common stock,
no par value no par value Investment
(Note A) (Note A) Retained Treasury stock in ITG
-------------------- ---------------- earnings -------------- Labora-
(accumulated tories,
Shares Amount Shares Amount deficit) Shares Amount Inc. Total
--------- ----------- ------- -------- ----------- ------ ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 . 5,985,663 $11,179,423 881,300 $845,448 $ 2,322,246 $14,347,117
Stock options exercised . . . . 67,719 165,281 165,281
Warrants and private placement
options exercised . . . . 605,495 1,425,661 1,425,661
Conversion of Class B common
stock to Class A common
stock . . . . . . . . . . 21,390 (21,390) -
Return and retirement of Class
B shares . . . . . . . . . (364,467) -
Investment in ITG Laboratories,
Inc. . . . . . . . . . . . 100,000 415,625 $(565,625) (150,000)
Net loss for the year . . . . . (6,921,241) (6,921,241)
---------- -------- -------- -------- ----------- --------- ---------
Balance at December 31, 1995 . 6,780,267 13,185,990 495,443 845,448 (4,598,995) (565,625) 8,866,818
Shares issued to Berlex Inc.
pursuant to amendment to
asset purchase agreement . 1,000,000 1,125,000 1,125,000
Shares issued for consulting
services . . . . . . . . . 12,000 16,875 16,875
Compensation charge for stock
options issued to
consultants . . . . . . . 58,000 58,000
Return and retirement of Class
B shares . . . . . . . . . (63,891) -
Disposition of investment in
ITG Laboratories, Inc. . . (100,000) (415,625) 565,625 150,000
Net income for the year . . . . 1,598,507 1,598,507
--------- ---------- ------- ------- --------- ------- ---------
Balance at December 31, 1996 . 7,692,267 13,970,240 431,552 845,448 (3,000,488) - 11,815,200
Net income for the six months
ended June 30, 1997
(unaudited) . . . . . . . 342,370 342,370
Treasury stock purchases
(unaudited) . . . . . . . 66,000 $(90,056) (90,056)
Issuance of treasury stock to
401(k) plan (unaudited) . (8,664) 11,641 11,641
--------- ----------- ------- -------- ----------- ------ -------- ------- -----------
Balance at June 30, 1997 7,692,267 $13,970,240 431,552 $845,448 $(2,658,118) 57,336 $(78,415) - $12,079,155
========= =========== ======= ======== =========== ====== ======== ======= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) $(6,921,241) $ 1,598,507 $ 314,524 $ 342,370
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities
Depreciation and
amortization 1,689,987 1,855,141 912,179 806,064
Loss on sale of
fixed assets - 8,437 - -
Noncash compensation
charges - 74,875 - -
Deferred tax benefit 482,000 - - -
Changes in
operating assets
and liabilities
Accounts
receivable 2,736,355 (481,280) 720,064 761,405
Inventory and
prepaid
samples and
materials (1,279,724) 1,188,380 447,335 380,342
Prepaid
expenses and
other 60,322 58,392 16,459 (124,233)
Accounts
payable and
accrued
expenses 4,370,157 (3,426,907) (2,152,526) (817,638)
Income taxes
payable/
refundable (2,970,702) 1,957,532 1,810,383 108,165
Due to/
from affiliate 96,419 - (71,666) -
---------- ---------- --------- --------
Net cash provided
by (used in)
operating
activities (1,736,427) 2,833,077 1,996,752 1,456,475
---------- ---------- --------- ---------
Cash flows from investing
activities
Investment in Doak
Pharmacal Co. Inc. (314,807) (7,236) (6,190) (2,372)
Proceeds from
disposition of
common stock of ITG
Laboratories, Inc. - 33,000 24,000 -
Redemption (purchase)
of temporary
investments, net 697,124 - - -
Additional investments
in trademarks,
patents and other
intangible assets (250,999) (350,244) (301,802) (55,890)
Purchase of property
and equipment (86,478) (22,312) (10,773) (18,223)
Proceeds on sale of
fixed assets - 6,200 - -
--------- ---------- --------- ---------
Net cash provided
by (used in)
investing
activities 44,840 (340,592) (294,765) (76,485)
--------- ---------- --------- ---------
</TABLE>
F-7
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended December 31,
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------- -------------------------
1995 1996 1996 1997
------------ ----------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing
activities
Proceeds from (payment
of) shareholders'
loans $ (15,000) $ - $ 100,000 $ -
Payment of notes
payable (524,383) (3,048,549) (2,324,548) (650,671)
Proceeds from
conversion of
warrants
and options 1,590,942 - - -
Purchase of treasury
shares, net - - - (78,416)
---------- ----------- ------------ ---------
Net cash (used in)
provided by
financing
activities 1,051,559 (3,048,549) (2,224,548) (729,087)
---------- ----------- ------------ ---------
NET (DECREASE)
INCREASE
IN CASH AND CASH
EQUIVALENTS (640,028) (556,064) (522,561) 650,903
Cash and cash equivalents
at beginning of
period 1,196,092 556,064 556,064 -
---------- ----------- ------------ ---------
Cash and cash equivalents
at end of period $ 556,064 $ - $ 33,503 $ 650,903
========== =========== ============ ==========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for
Interest $ 97,900 $ 224,000 $ 109,000 $ 66,000
Income taxes 953,000 42,000 - 74,000
</TABLE>
Reference is made to Notes C and D for product acquisitions in
1996 and 1995, and the payment terms for such acquisitions.
The Company issued 1,000,000 shares of its Class A common stock
in partial satisfaction of its obligation to Berlex in 1996 (see
Note C).
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Bradley Pharmaceuticals, Inc. (the "Company") is a New Jersey
corporation founded in 1985. The Company's primary business
activity is the manufacturing and marketing of various
pharmaceutical and dermatological products, which have been
acquired through the purchase of trademark rights and patents.
A summary of the significant accounting policies of the Company
applied in the preparation of the accompanying consolidated
financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Bradley Pharmaceuticals, Inc. and its wholly-owned
subsidiary, Doak Dermatologics Inc. ("Doak"), acquired
February 1, 1994 (Note D) and its wholly-owned foreign sales
corporation, Bradley Pharmaceuticals Overseas, Ltd., formed
in February 1995, and its wholly-owned subsidiary, Bradley
Pharmaceuticals (Canada) Inc., formed in June 1996. All
intercompany transactions have been eliminated in
consolidation.
2. Inventory
Inventory, consisting principally of finished goods, is
stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
3. Prepaid Samples and Materials
The Company capitalizes product samples and promotional
materials. These items are charged to operations in the
period in which they are distributed to customers.
4. Depreciation
Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their
estimated service lives using the straight-line and
accelerated methods over a period of five to seven years for
equipment and ten years for leasehold improvements.
5. Intangible Assets
The costs of noncompete agreements, goodwill, license
agreements, and purchased trademarks and patents are
capitalized and amortized on a straight-line basis to
operations over their estimated useful lives or statutory
lives, whichever are shorter. The estimated lives for
trademarks are 10 to 40 years (with a cost basis of
approximately $13.9 million and $14.5 million at December 31,
1996 and 1995, respectively, comprised of 15-year life
trademarks).
The estimated amortization periods for other intangible
assets are as follows: 10 to 20 years for goodwill, 10 years
for license agreements, 17 years (or the remaining life at
the time of purchase, if shorter) for patents and 3 years for
noncompete agreements.
F-9
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE A (CONTINUED)
The Company has adopted Statement of Financial Accounting
Standards No. 121, "Impairment of Long-Lived Assets to be
Disposed Of." Accordingly, whenever events or circumstances
indicate that the carrying amount of an asset may not be
recoverable, management assesses the recoverability of the
asset. Management compares the cash flows, on an undiscounted
basis, expected to be generated from the related assets to
the carrying amounts to determine whether an impairment has
occurred. It is reasonably possible that the actual cash
flows that result will be insufficient to recover the
carrying amount of certain of these intangibles. No
impairment loss was required for 1996 or 1995.
6. Cash and Cash Equivalents
Cash and cash equivalents include investments in highly
liquid securities having an original maturity of three months
or less at the time of purchase.
7. Certain Concentrations
The Company is potentially subject to concentrations of
credit risk, which consist principally of cash and cash
equivalents and trade accounts receivable. The cash and cash
equivalent balances at December 31, 1995 were principally
held by one institution, and are in excess of the Federal
Deposit Insurance Corporation ("FDIC") insurance limit.
Concentration of credit risk with respect to accounts
receivable is generally limited due to the Company's large,
diverse customer base. Moreover, at December 31, 1996 and
1995, two and three wholesale customers accounted for
approximately 59% and 38%, respectively, of the total
accounts receivable balance.
Approximately 51% and 40% of the Company's net sales for the
years ended December 31, 1996 and 1995 were derived from
sales of its Deconamine(Registered Trademark) products. The
Company cannot predict the date Deconamine(Registered
Trademark)SR status, mandated by the United States Food and
Drug Administration, ("FDA") will change from a prescription
product to an over-the-counter product. The Company,
however, based upon information obtained currently from the
FDA, believes the status will not change until sometime after
April 1998. For the year ended December 31, 1995,
Deconamine(Registered Trademark) sales (purchased through
wholesalers) to the U.S. government and its affiliated
agencies generally under contracts accounted for
approximately 25% of gross sales; however, less than 10% of
overall net sales. During 1996, certain of these contracts
were terminated or renegotiated at higher prices, and
accounted for approximately 27% and 9% of gross and net
sales, respectively.
For the year ended December 31, 1996, three wholesale
customers accounted for approximately 37% (15%, 12% and 10%)
of net sales. For the year ended December 31, 1995, three
wholesale customers accounted for approximately 41% (16%, 13%
and 12%) of net sales.
One company manufacturing products for the Company accounted
for approximately 16% of the Company's cost of goods sold for
the year ended December 31, 1996. Two companies
manufacturing products and two companies producing packaging
products for the Company accounted for approximately 20%,
12%, 13% and 10%, respectively, of the Company's cost of
goods sold for the year ended December 31, 1995. Management
F-10
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE A (CONTINUED)
believes it can obtain replacement manufacturing arrangements
and that a loss of any or all of their vendors and/or
manufacturers would not have a material effect on the
Company.
The Company had export sales of approximately 11% and 20% of
its net sales for the years ended December 31, 1996 and 1995,
respectively.
8. Net Income Per Common Share
For the years ended December 31, 1996 and 1995, the net
income (loss) per common share was based upon weighted
average number of shares outstanding of Class A and B shares
and does not include the effect of the stock equivalents
because the inclusion of such stock equivalents would be
antidilutive or not materially dilutive.
9. Income Taxes
The Company and Doak file a consolidated Federal income tax
return.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." This statement requires,
among other things, an asset and liability approach for
financial accounting and reporting for deferred income taxes.
In addition, the deferred tax liabilities and assets are
required to be adjusted for the effect of any future changes
in the tax law or rates. Deferred income taxes arise from
temporary differences resulting in the basis of assets and
liabilities for financial reporting and income tax purposes.
10. Accounting for Stock Options
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation, " issued in 1995,
introduces a method of accounting for employee stock-based
compensation plans based upon the fair value of the awards on
the date they are granted. Under this fair value based
method, public companies estimate the fair value of stock
options using a pricing model, such as the Black Scholes
model, which requires inputs such as the expected volatility
of the stock price and an estimate of the dividend yield over
the option's expected life. This statement gives entities a
choice of recognizing related compensation expense by
adopting the new valuation method or to continue to measure
compensation using the intrinsic value approach under
Accounting Principles Board ("APB") Opinion No. 25. The
Company has adopted the APB No. 25 method of measurement (see
Note H-2).
F-11
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE A (CONTINUED)
11. Reclassifications
Certain reclassifications have been made to the prior year
financial statements in order to conform to the current
presentation.
12. Using Estimates in Financial Statements
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The Company's estimate for chargebacks and
rebates represents a particularly sensitive estimate.
13. Chargebacks and Rebates
Chargebacks and rebates are based on the difference between
the prices at which the Company sells its products
(principally DECONAMINE(R)SR) to wholesalers and the sales
price ultimately paid by the end-user (often governmental
agencies and managed care buying groups) pursuant to fixed
price contracts. The Company records an estimate of the
amount either to be charged back to the Company, or rebated
to the end user, at the time of sale to the wholesaler.
Management has recorded an accrual for chargebacks and rebates
of $1,865,000 and $3,026,000 at December 31, 1996 and 1995,
respectively (included in accrued expenses), based upon
factors including current contract prices, historical
chargeback rates and actual chargebacks claimed. The amount
of actual chargebacks claimed could differ (either higher or
lower) in the near term from the amounts accrued by the
Company.
At September 30, 1995, the Company recorded a change in
estimate for chargebacks relating principally to government
and managed care sales of DECONAMINE(R)SR made in prior
periods. The re-estimate for chargebacks and rebates for
the year ended December 31, 1995 was $1,300,000.
The Company's analysis of the trend in actual chargebacks and
rebates resulted in a decrease in the percentage used to
adjust gross sales to net sales for the second quarter of
1997, resulting in increased net sales and net income of
$45,000. Additionally, during the second quarter of 1997,
the Company released approximately $229,000 of the previously
established chargeback and rebate reserves, resulting in an
increase to net sales and net income.
14. Unaudited Interim Financial Information
The unaudited condensed interim financial statements of the
Company have been prepared in accordance with generally
accepted accounting principles for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
F-12
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE A (CONTINUED)
In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of
normal recurring entries) necessary to present fairly the
financial position as of June 30, 1997 and the results of
operations and cash flows for the six-month periods ended
June 30, 1997 and 1996, respectively.
The results reported for the six-month period ended June 30,
1997 are not necessarily indicative of the results of
operations which may be expected for a full year.
NOTE B - BASIS OF PRESENTATION
The Company had a working capital deficit of $2,828,800 at
December 31, 1996. The Company is obligated to pay
approximately $2.9 million through January 1998 to Berlex
Laboratories, Inc. ("Berlex") under a product acquisition
agreement for its DECONAMINE(Registered Trademark) product
(Note C), which agreement was amended December 23, 1996.
$500,000 of the January 1997 through March 1997 payments
aggregating $1,200,000 have been made through March 1997, and
the due date of the March 1997 payment of $700,000 was
extended to April 15, 1997. The Company's consolidated
financial statements have been prepared on the basis that it
is a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the ordinary course
of business. The matters discussed above raise substantial
doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not
include any adjustments that might result from this
uncertainty.
Management's plans for dealing with these matters include
some or all of the following:
- Make the required debt service payments
as cash is available. This amount is
expected to be paid from cash on hand,
cash generated by operations, private
placements with new or existing investor
groups, or loans.
- The Company also believes it has the
ability to accelerate sales to (and
collections from) certain customers and
to sell certain foreign and domestic
trademark rights to the extent necessary
(if at all) to make certain payments.
- Pursue equity financing on terms that
management considers to be satisfactory.
- Negotiating additional payment
modifications with Berlex (see Note C).
Although management considers its plans to be viable, there
can be no assurance that the Company will be successful in
carrying out these plans.
F-13
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C - INTANGIBLE ASSETS
Intangible assets are summarized as follows:
1996 1995
------------------------- -------------------------
Accumulated Accumulated
Cost amortization Cost amortization
----------- ---------- ----------- ----------
Trademarks . . $16,905,140 $3,675,007 $18,195,401 $2,406,176
Patents . . . . 1,327,454 735,517 1,327,454 551,666
Licenses . . . 124,886 46,800 124,886 34,320
Goodwill . . . 1,248,125 318,399 1,221,366 194,688
Covenants not 162,140 160,486 162,140 128,660
to compete . . ----------- -------- -------- --------
$19,767,745 $4,936,209 $21,031,247 $3,315,510
=========== ========== =========== ==========
Intangible assets arose principally from the Doak acquisition
(Note D) and the following transactions in 1992 through 1996.
1. LUBRIN(Registered Trademark)
In December 1992, the Company acquired certain rights,
including the trademark and patent, to the personal
lubricating insert, LUBRIN(Registered Trademark) INSERTS
("LUBRIN(Registered Trademark)"). Concurrently with this
acquisition, the Company and UPSHER-SMITH LABORATORIES, INC.
("UPSHER-SMITH"), entered into a three-year manufacturing
contract, renewable at six-month intervals after the initial
term, to manufacture LUBRIN(Registered Trademark) for the
Company and agreed for seven years not to compete with the
Company with respect to the product LUBRIN(Registered
Trademark).
Total consideration for the Company's acquisition of
LUBRIN(Registered Trademark) consisted of: (i) $1 million,
$500,000 of which was paid at closing, with the balance
payable at a rate of 9% per annum, in 20 quarterly
installments of $31,321 each, commencing on March 15, 1993;
(ii) a 4% royalty on adjusted sales of LUBRIN(Registered
Trademark) up to and including the first $5,000,000 and 3% of
adjusted sales in excess of the first $5,000,000 through
October 30, 1999; and (iii) warrants to purchase up to 60,000
shares of the Company's Class A common stock at a price of
$4.50 per share exercisable at any time prior to December 15,
1997. Of the total purchase price, $1 million was attributed
to patents with an estimated life of seven years.
2. TRANS-VER-SAL(Registered Trademark) Wart Products/
GLANDOSANE(Registered Trademark)
On March 30, 1993, the Company acquired from Tsumura Medical,
a division of Tsumura International, Inc., all technical,
proprietary and distribution rights to five specialized
dermal patch products currently used in the treatment of
warts ("TRANS-VER-SAL(Registered Trademark)") and a synthetic
saliva aerosol product ("GLANDOSANE(Registered Trademark)")
used to alleviate dry mouth caused by various treatments and
illnesses.
F-14
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C (CONITNUED)
Total consideration for the Company's acquisition of these
products consisted of: (i) $1,300,000, of which $850,000 was
paid at closing and the balance of $450,000 payable by the
Company's promissory note at 7% per annum in twenty quarterly
installments of $26,861; (ii) a 5.5% royalty on net sales of
the products payable for a period of five years or until an
aggregate $600,000 of royalty payments are made; (iii)
approximately $170,000 paid for the acquisition of inventory
on hand; and (iv) warrants granted to purchase up to 150,000
shares of the Company's Class A common stock at $4.50 per
share exercisable at any time through March 30, 1998. Of the
total purchase price, $866,250 was attributed to trademarks
with an estimated life of 20 years.
3. DECONAMINE(Registered Trademark)
On December 10, 1993 (the "Closing Date"), in accordance with
the terms and conditions set forth in the Purchase Agreement
dated as of November 10, 1993, as amended (the "Purchase
Agreement"), between Bradley Pharmaceuticals, Inc. and Berlex
Laboratories, Inc. ("Berlex"), the Company acquired all
technical, proprietary and distribution rights to an allergy
and decongestant remedy called DECONAMINE(Registered
Trademark) ("DECONAMINE(Registered Trademark)").
Specifically, the Company acquired: Customer receivables,
net of chargebacks and rebates from sales of
DECONAMINE(Registered Trademark) from the close of business
on October 29, 1993 to the Closing Date; all
DECONAMINE(Registered Trademark) inventory existing at the
Closing Date; and all intellectual property rights, marketing
materials, books and records, licenses and permits and
goodwill relating to DECONAMINE(Registered Trademark).
Total consideration for the Company's acquisition (after
giving effect to imputed interest of approximately $1.6
million) was originally approximately $16.4 million (the
"Purchase Price") and consisted of: (i) approximately $4.3
million, paid at closing, from the proceeds of a private
placement (Note H), with an additional $1.7 million paid from
proceeds of DECONAMINE(Registered Trademark) sales from
November 1, 1993 to the date of closing; (ii) $0.4 million
representing the standard costs of the inventory as of the
close of business on October 29, 1993 (except for 50% of the
inventory of the raw material active ingredient) paid 30 days
from the Closing Date; (iii) the standard costs of 50% of the
inventory of the raw material active ingredient paid 60 days
from closing; (iv) a non-interest-bearing note calling for
payments of $2 million during December 1994, approximately
$2.66 million each on the second, third and fourth
anniversaries of the Closing Date; and (v) $84,000 to be paid
on the last day of each month beginning with January 1996, up
to a maximum of $2 million if the effective date (plus grace
period for compliance, if any) announced by the FDA
publication with respect to the final "Monograph" for
DECONAMINE(Registered Trademark) has occurred; and the
Company has, prior to or during such month, expended funds
for the purpose of preserving the prescription drug status of
DECONAMINE(Registered Trademark).
During the fourth quarter of 1995, the Company accrued
approximately $1,512,000 representing 18 months of payments
pursuant to item (v) above as the minimum amount it
determined to be payable prior to DECONAMINE(Registered
Trademark) coming off prescription status. During the first
quarter of 1996, an additional $252,000 was accrued,
representing an additional three months of payments.
F-15
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C (CONTINUED)
On January 5, 1996, the Company and Berlex amended the
agreement to provide for the following:
- The $2.67 million due on December 9, 1995 was
rescheduled to provide a payment of $800,000 in
February 1996 and the remainder to be paid on June
30, 1996. All payments are collateralized by the
Company's accounts receivable and inventory until
after the June 30, 1996 payment is made.
- The $84,000 monthly payments described in item (v) above
will be payable beginning in January 1, 1998.
- Interest will accrue on the deferred $2.67 million
payment at prime plus 4%. Interest will accrue on
the $84,000 per month beginning February, 1996 at
prime plus 2%.
On December 23, 1996, the Company and Berlex further amended
the agreement to provide the following:
- The Company is to make payments of $250,000 each on
December 23, 1996, December 31, 1996, January 30, 1997
and February 18, 1997; $700,000 is due on March 17,
1997; $1.0 million is due on May 15, 1997; and $100,000
per month is due June 15, 1997 through January 15, 1998.
$500,000 of the $1,200,000 due Berlex for the period
January 1997 through March 1997 was paid through March
1997. A one-month extension until April 15, 1997 was
granted by Berlex for the March 1997 payment.
- The Company also issued to Berlex 1,000,000 Class A
shares (approximately 13% of the new public float of 7.7
million shares) with a then market value of $1,125,000,
and which the Company is required to use its best
efforts to cause to be registered with the Securities
and Exchange Commission.
The Company granted Berlex a security interest in all of
the Company's accounts receivable to secure the payments
of the first $1.7 million in payments and executed a
Confession of Judgment in the event the Company defaults
in timely making any of such $1.7 million in payments.
The difference between the carrying amount of the
obligation to Berlex and the amount of consideration to
be paid under the December 23, 1996 amendment represents
a reduction in the net purchase price of
DECONAMINE(Registered Trademark) pursuant to the
December 1996 amended agreement, amounted to $2,413,000
and was recorded as a reduction to the intangible
assets.
On September 19, 1997 (the "Closing"), the Company
consummated the negotiated settlement of all of its
outstanding obligations to Berlex arising out of the
Company's 1993 acquisition of the DECONAMINE(Registered
Trademark) line of cough and cold products. Immediately
prior to the Closing, the Company was indebted to Berlex
in the approximate aggregate amount of $2.5 million. As
security for the satisfaction of its obligations to
Berlex, the Company had granted to Berlex a lien
covering all of the Company's accounts receivable and
warranted to Berlex that until such time as all of the
Company's obligations to Berlex were satisfied, the
Company would not, generally, without Berlex's consent,
grant any person a security interest in, or create a
lien upon, any of the Company's assets.
At the Closing, in satisfaction of all outstanding
obligations owing to Berlex, and in consideration of Berlex's
release of its lien covering the Company's accounts
receivable, the Company (i) paid to Berlex $1.15 million in
F-16
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C (CONTINUED)
cash, plus accrued interest (the "Cash Payment"), (ii) issued
to Berlex 450,000 shares of Class A Common Stock (which, when
added with the other shares of Class A Common Stock
previously issued to Berlex represented, at the time of
issuance, approximately 19% of the outstanding Class A Common
Stock of the Company) and (iii) agreed to issue to Berlex,
when permissible in accordance with applicable state
corporate law, warrants entitling Berlex to purchase, under
certain conditions, up to an additional 750,000 shares of
Class A Common Stock at an exercise price of $1.25 per share.
Such warrants are subject to certain anti-dilution provisions
and expire two years after issuance, but may be extended
under certain conditions.
The difference between the then carrying amount of the
obligation to Berlex and the total consideration specified by
the September 19, 1997 amendment represents a reduction in
the net purchase price of DECONAMINE(Registered Trademark),
and will be recorded as a reduction to the intangible assets.
In order to raise the funds necessary for the Company to make
the Cash Payment to Berlex, the Company, concurrently with
the Closing, entered into a $3 million revolving credit
facility with The CIT Group/Credit Finance Inc. ("CIT").
Advances under this facility are calculated pursuant to a
formula which is based upon the Company's then "eligible"
accounts receivable and inventory levels. This line of
credit has an initial term of three years and is renewable
for successive periods of two years each. The credit
facility requires an annual facility fee and is subject to an
unused credit line percentage fee. Interest accrues on
amounts outstanding under this facility at the rate equal to
the prime rate of interest from time to time announced by The
Chase Manhattan Bank as its prime rate of interest plus 2
1/4%. The Company's obligations under this credit facility
have been secured by the grant by the Company to CIT of a
lien upon, and the pledge of a security in, all of the
Company's inventory, accounts receivable, intangible assets
(subject to prior lien) and other assets. The credit
facility contains certain covenants and restrictions and a
limited personal guaranty by Daniel Glassman.
4. ADEFLOR M(Registered Trademark) and PAMINE(Registered
Trademark) Acquisitions
In February 1994, the Company acquired from The Upjohn
Company ("Upjohn"), all United States manufacturing,
packaging and proprietary rights, including all trademarks,
registrations, marketing data, and customer lists of ADEFLOR
M(Registered Trademark), a vitamin and mineral tablet with
fluoride, and PAMINE(Registered Trademark) tablets,
methscopalamine bromide, used in connection with the
treatment of peptic ulcers. In consideration therefor, the
Company agreed to pay Upjohn $225,000, $50,000 at closing,
with the remaining $175,000 payable in equal quarterly
installments of $25,000, each commencing on June 30, 1994.
In addition, the Company agreed to pay Upjohn an 8% royalty
against net sales of these products through February 1, 1996,
and a 4% royalty thereafter until February 1, 2004. In 1996,
the Company and Upjohn entered into an agreement whereby the
Company paid Upjohn $25,000 in lieu of royalty payments
accruing on or after December 31, 1996. The Company further
agreed to purchase from Upjohn, at approximately Upjohn's
cost, all salable inventory of ADEFLOR M(Registered
Trademark) and PAMINE(Registered Trademark) existing at the
closing date.
5. CARMOL(Registered Trademark) Acquisition
In June 1994, the Company acquired from Syntex (U.S.A.) Inc.
("Syntex") all manufacturing, packaging, quality control,
stability, drug experience, file history, customer lists and
marketing rights, titles and interests, including all U.S.
F-17
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C (CONTINUED)
trademarks to CARMOL(Registered Trademark) 10 and
CARMOL(Registered Trademark) 20 (nonprescription total body
moisturizers) and CARMOL(Registered Trademark) HC (a
prescription moisturizer containing hydrocortisone) (the
"CARMOL Products"). In consideration for this acquisition,
the Company agreed to pay Syntex $450,000, $150,000 of which
was paid at closing. The remaining $300,000 is payable in
three (3) equal annual installments of $100,000 each,
commencing on June 10, 1995. In addition, the Company agreed
to pay Syntex a 3% royalty on sales of the CARMOL Products,
commencing June 10, 1997 for a period of seven years.
6. ITG LABORATORIES, INC. Investment
Effective June 15, 1995, the Company entered into a Stock
Purchase and Distribution Agreement with ITG Laboratories,
Inc. ("ITG"), a product research company headquartered in
Atherton, CA and Yavne, Israel, whereby:
- The Company purchased approximately 17% of the stock of
ITG (approximately 1,000,000 shares) for 100,000 shares
of Bradley Class A Common Stock distributed during
August 1995 and $150,000.
- The Company was appointed exclusive U.S. distributor for
all of ITG's Omiderm products, including ITG's
Synthetic Polyurethane Wound Dressing. Omiderm is a
clinically proven, unique wound dressing line which
allows permeability of water, oxygen and aqueous
medications, while maintaining a sterile environment for
healing by preventing microbial invasion. The product
sales through December 31, 1995 are not material to the
Company's operations. The value of consideration for
this acquisition was $565,625 and is included as a
reduction of stockholders' equity on the accompanying
consolidated balance sheet.
During 1996, the Company and ITG entered into an
agreement that resulted in an unwinding of this
transaction, and the recording of a $90,000 loss and
that provided for the following:
- The Company delivered the 1,000,000 shares of ITG
stock to ITG.
- ITG delivered the 100,000 shares of Bradley stock
and $60,000 (payable by ITG through April 1998) to
Bradley.
- Bradley retained its nonexclusive U.S. distribution
rights for the Omiderm products.
7. ACID MANTLE(Registered Trademark) Acquisition
In May 1996, the Company acquired from Sandoz Pharmaceuticals
Corp. ("Sandoz") the trademark rights to the ACID
MANTLE(Registered Trademark) skin treatment line, including
the manufacturing, marketing and distribution rights within
the United States and Puerto Rico. In consideration for this
acquisition, the Company agreed to pay Sandoz $900,000, of
which $250,000 was paid at closing. The remaining $650,000
is payable in installments of $250,000 in May 1997 and
$100,000 per year from May 1998 through May 2001. The
Company also purchased Sandoz's entire inventory of ACID
MANTLE(Registered Trademark) salable products and raw
material.
F-18
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE C (CONTINUED)
The majority of the Purchase Price was attributed to
trademarks with an estimated life of 15 years.
NOTE D - ACQUISITION OF DOAK PHARMACAL CO., INC.
On February 14, 1994, the Company acquired as of January 31,
1994, 67.7% of the shares of Doak Pharmacal Co., Inc.
("Doak"), for approximately $929,000. Doak was a publicly
traded company engaged in the manufacture and sale of
cosmetic dermatologic products and pharmaceutical
dermatologic products. The acquisition was accounted for as
a purchase. Accordingly, the results of operations of Doak
have been included in the accompanying consolidated financial
statements commencing February 1, 1994. Goodwill resulting
from this purchase totaling approximately $640,000 is being
amortized over ten years.
In January 1995, the Company consummated the merger of Doak
with the Company, pursuant to which the Company acquired
substantially all of the remaining outstanding shares of Doak
(at the same $1.74 per share price as the initial
acquisition) for a total of approximately $420,000, of which
approximately $335,000 was paid through March 15, 1996
(representing the Doak shares forwarded to the Company for
redemption to date). In December 1994, the Company acquired
an additional 2.3% of the shares of Doak for approximately
$24,000. In 1995 and 1996, the Company acquired certain
minor additional shares of Doak. Such amounts paid are
recorded as additional goodwill.
NOTE E - INCOME TAXES
The provision for income tax (expense) benefit is as follows:
Year ended Year ended
December 31, December 31,
1996 1995
---------- ----------
Current
Federal $(950,000) $1,758,523
State (193,000) 219,501
---------- ----------
(1,143,000) 1,978,024
---------- ----------
Deferred
Federal - (423,000)
State - ( 59,000)
---------- ----------
Utilization of net operating loss
carryforwards
Federal 895,000 -
State 98,000 -
---------- ----------
993,000 -
---------- ----------
$(150,000) $1,496,024
========== ==========
F-19
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE E (CONTINUED)
The following is a summary of the items giving rise to deferred
tax benefits at December 31, 1996 and 1995:
1996 1995
-------- --------
Current
Allowance for doubtful accounts $26,000 $123,000
Allowances on sales 286,000 49,000
Inventory reserves and
capitalization 124,000 116,000
Accrued expenses 93,000 64,000
-------- --------
529,000 352,000
-------- --------
Long-term
Net operating loss carryforward 307,000 853,000
Alternative minimum tax credit 188,000 138,000
Amortization of intangibles and
fixed assets 352,000 50,000
-------- ----------
847,000 1,041,000
-------- ----------
Total deferred tax assets 1,376,000 1,393,000
Less valuation allowance (1,376,000) (1,393,000)
--------- ---------
$ - $ -
========== ==========
A valuation allowance has been recorded at December 31, 1996
and 1995 reflecting the uncertainty of the future utilization
of these tax benefits.
The difference between the actual Federal income tax benefit
(expense) and the amount computed by applying the prevailing
statutory rate to income before income taxes is reconciled as
follows:
Year ended Year ended
December 31, December 31,
1996 1995
-------- --------
Tax at statutory rate (34.0)% 34.0%
State income tax (expense) benefit,
net of Federal tax effect (3.5) 1.3
Change in valuation allowance and
previously unrecorded benefits 31.5 (16.5)
Other (2.6) (1.0)
-------- --------
Effective tax rate (8.6)% 17.8%
======== ========
F-20
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE E (CONTINUED)
The Company has a net operating loss carryforward for Federal
income tax purposes of $511,000.
Internal Revenue Code Section 382 places a limitation on the
utilization of Federal net operating loss and other credit
carryforwards when an ownership change, as defined by the tax
law, occurs. Generally, this occurs when a greater than 50
percentage point change in ownership occurs. Accordingly,
the actual utilization of the net operating loss
carryforwards and other deferred tax assets for tax purposes
may be limited annually to the percentage (about 6%) of the
fair market value of the Company at the time of any such
ownership change.
As a result of the stock ownership changes that occurred in
connection with the acquisition of Doak, the Subsidiary's net
operating loss carryforwards became subject to this
limitation. Included in the Company's $511,000 net operating
loss carryforward is $344,000 of net operating loss
carryforward subject to this limitation, of which a maximum
of $71,000 can be utilized (annually) in subsequent years and
which expires in 2004. The remaining $167,000 of net
operating loss was generated in 1995 and will be carried
forward, subject to limitations, and expires in 2010.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
-------- --------
Installment note due 2001 (a) $118,989 $ 118,989
Installment note due 1996 (b) - 24,570
Installment note due 1997 (c) 118,542 226,989
Installment note due 1998 (d) 151,738 221,886
Installment note due 1997 (e) 2,879,882 8,510,761
Installment note due 1997 (f) 98,282 194,872
Capital lease obligations (g) 63,824 141,385
Installment note due 2001 (h) 520,957 -
Installment notes - other 23,319 1,231
---------- ----------
3,975,533 9,440,683
Less: current maturities (3,444,569) (4,949,633)
---------- ----------
$ 530,964 $4,491,050
========== ==========
F-21
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE F (CONTINUED)
(a) The note, which originated in August 1991 in connection
with the acquisition of a trademark (DUADACIN(Registered
Trademark)), calls for interest only, at the rate of 10%
commencing August 1992, and quarterly installments
consisting of principal and interest in the amount of
$6,865 for the eight-year period commencing November
1993. This note is collateralized by the trademark
assigned to the Company.
(b) The note payable, which originated in February 1994 in
connection with the acquisition of the trademarks
(ADEFLOR M(Registered Trademark) and PAMINE(Registered
Trademark)), bears no interest, but interest has been
imputed at an annual rate of 7%. Quarterly payments of
$25,000 commenced on June 30, 1994, with a final payment
made in 1996.
(c) The note payable, which originated in December 1992 in
connection with the acquisition of a patent and
trademark (LUBRIN(Registered Trademark)), bears interest
at the rate of 9% with quarterly installments consisting
of principal and interest in the amount of $31,321. The
seller of the product has been granted a security
interest in the assets acquired by the Company.
(d) The note payable, which originated in March 1993 in
connection with the acquisition of trademarks and a
patent (TRANS-VER-SAL(Registered
Trademark)/GLANDOSANE(Registered Trademark)), bears
interest at the rate of 7% and is payable in 20 equal
quarterly installments of $26,861. The seller has been
granted a security interest in the assets acquired by
the Company. The Company is in default of this note for
failure to make timely payments.
(e) The note payable, which originated in December 1993 in
connection with the acquisition of a trademark
(DECONAMINE(Registered Trademark)), is non-interest-
bearing. Pursuant to the renegotiated terms (Note B),
the note is payable in installments of $250,000 in
January and February 1997, $700,000 on March 17, 1997,
$1,000,000 on May 15, 1997 and $100,000 per month from
June 1997 through January 1998. The January 1997
through March 1997 payments aggregating $1,200,000 have
only been paid to the extent of $500,000 and the March
1997 payment was extended to April 15, 1997. Interest
at an annual rate of 7% was originally imputed for this
note and was revised to 10.5% in December 1996. The
amount due at December 31, 1996 and 1995 is net of
imputed interest of $112,000 and $1,001,000,
respectively. The seller has been granted a security
interest in the assets acquired by the Company. Berlex
has also been granted a security interest in the
Company's accounts receivable through the date of
payment of the first $1.7 million in payments, of which
$500,000 was paid in December 1996 and $500,000 was paid
through March 1997. See Note C for terms of the further
amendment to this liability.
(f) The note payable, which originated in June 1994 in
connection with the acquisition of trademarks
(CARMOL(Registered Trademark)), is non-interest-bearing
and is payable in annual installments of $100,000
commencing June 1995. Interest at an annual rate of 7%
has been imputed for this note. The seller has been
granted a security interest in the assets acquired by
the Company.
(g) The capital lease obligations consist of two computer
leases payable in monthly installments of $8,534 through
June 1996 and $7,792 from July 1996 through June 1997.
(h) The note payable, which originated in May 1996 in
connection with the acquisition of trademarks (ACID
MANTLE(Registered Trademark)) is non-interest-bearing
and is payable in installments of $250,000 in May 1997,
F-22
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE F (CONTINUED)
and $100,000 each per year from May 1998 through 2001.
Interest at an annual rate of 9.5% has been imputed for
this note. The seller has been granted a security
interest in the assets acquired by the Company.
The annual maturities of long-term debt are summarized as
follows:
Amount
--------
Year ending
December 31,
1997 $3,444,569
1998 214,756
1999 97,893
2000 107,384
2001 110,931
--------
$3,975,533
==========
Because of the nature of the Company's debt it is impractical
to determine its fair value.
NOTE G - RELATED PARTY TRANSACTIONS
1. Transactions With an Affiliated Company
During the years ended December 31, 1996 and 1995, the
Company received administrative support services (consisting
principally of advertising services, mailing, copying, data
processing and other office services) which were charged to
operations from Banyan Communications Group, Inc. ("Banyan"),
an affiliate, in the amount of $280,000 and $517,000,
respectively. During 1996 and 1995, the Company paid Banyan
$291,000 and $440,000, respectively, for such services.
2. Transactions With Shareholders
On December 31, 1990, the Company issued a promissory note
bearing interest at 9-1/2% per annum in the amount of
$123,975 for the cumulative amounts of previously issued
demand loans to Daniel Glassman, the Chairman and Chief
Executive Officer. The final $15,000 of this note was repaid
in 1995.
In connection with the Company's satisfaction in June 1996 of
the $1.87 million liability then owing to Berlex, the Company
borrowed $100,000 from various trusts established for the
benefit of the children of Daniel Glassman and Iris Glassman.
Mrs. Glassman is a Director and the Treasurer of the Company.
This loan was repaid on September 30, 1996 and included total
interest of approximately $4,100 (at the rate of 16% per
annum).
F-23
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H - SHAREHOLDERS' EQUITY
The Company's authorized shares of common stock are divided
into two classes, of which 26,400,000 shares are Class A
common stock and 900,000 shares are Class B common stock.
The rights, preferences and limitations of the Class A and
the Class B common stock are equal and identical in all
respects, except that each Class A share entitles the holder
thereof to one vote upon any and all matters submitted to the
shareholders of the Company for a vote, and each Class B
share entitles the holder thereof to five votes upon certain
matters submitted to the shareholders of the Company for a
vote.
Both Class A common stock and Class B common stock vote
together as a single class upon any and all matters submitted
to the shareholders of the Company for a vote, provided,
however, that the holders of Class A common stock and holders
of Class B common stock vote as two separate classes to
authorize any proposed amendment to the Company's Certificate
of Incorporation, which affects the rights and preferences of
such classes. So long as there are at least 325,000 shares
of Class B common stock issued and outstanding, the holders
of Class B common stock vote as a separate class to elect a
majority of the directors of the Company (who are known as
"Class B Directors"), and the holders of Class A common stock
and voting preferred stock, if any, vote together as a single
class to elect the remainder of the directors of the Company.
The Board of Directors may divide the preferred stock into
any number of series, fix the designation and number of
shares of each such series, and determine or change the
designation, relative rights, preferences and limitations of
any series of preferred stock. The Board of Directors may
increase or decrease the number of shares initially fixed for
any series, but no such decrease shall reduce the number
below the number of shares then outstanding and shares duly
reserved for issuance.
1. Stock Repurchase Agreement
Certain shareholders of the Company, including Daniel
Glassman, Iris S. Glassman, the Treasurer and a Director of
the Company, and David Hillman, the Secretary and a Director
of the Company, who are employees of Banyan (Note G), entered
into a Buy-Sell Agreement, pursuant to which Banyan agreed,
upon the request of the shareholder or upon the termination
of employment with Banyan to purchase all the Company's stock
acquired by such shareholder prior to the date of the
Company's initial public offering, at the book value per
share thereof, calculated as of the end of the last fiscal
year preceding the redemption, plus the shareholder's share
of undistributed profits as of the end of the last fiscal
year. The repurchase obligation terminates in stages over a
five-year period, commencing on the first anniversary date of
the Company's initial public offering. During 1994, Banyan
repurchased 3,865 shares from a former Banyan employee. No
other shares have been repurchased pursuant to such
agreement.
F-24
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
In January 1997, the Company announced a program to
repurchase up to 5% of the outstanding Class A common stock
in open market transactions over the next 24 months. These
shares will be held in Treasury by the Company to be used for
purposes deemed necessary by the Board of Directors,
including funding company matching contributions to the
401(k) Plan. During January 1997, the Company acquired
21,500 shares at a cost of approximately $29,000.
2. Stock Option Plan
The Board of Directors has adopted the 1990 Stock Option
Plan, reserving 1,500,000 shares of Class A common stock for
issuance. The number of shares reserved for issuance was
increased to 2,600,000 in 1996 (see Note H-6). The plan will
expire on January 31, 2000, but options may remain
outstanding past this date.
The number of shares covered by each outstanding option, and
the exercise price, must be proportionately adjusted for any
increase or decrease in the number of issued shares resulting
from a subdivision or consolidation of shares, stock split,
or the payment of a stock dividend, and are summarized as
follows:
The following is a summary of stock option activity under the
plan:
Weighted
average
Number of exercise
options price
-------- --------
Balance, December 31, 1994 1,037,864 $3.23
Granted 771,127 3.49
Exercised (103,944) 2.78
Canceled (67,719) 2.88
--------
Balance, December 31, 1995 1,637,328 3.42
Granted 265,391 1.32
Exercised -- --
Canceled (423,354) 1.72
--------
Balance, December 31, 1996 1,479,365 1.34
==========
As of December 31, 1996, options outstanding for 1,177,236
shares were exercisable at prices ranging from $.68 to $3.65,
and the weighted remaining contractual life was 4.9 years.
F-25
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
The following table summarizes option data, other than those
held by non-employees, as of December 31, 1996:
Number Number
outstanding Weighted exercisable
as of average Weighted as of Weighted
Range of December remaining average December average
exercise 31, contractual exercise 31, exercise
prices 1996 life price 1996 price
-------- -------- -------- -------- -------- --------
(in thousands) (in thousands)
$ .68 - $1.40 625 5.6 $1.18 547 $1 .17
1.41 - 3.65 622 4.3 1.50 419 1.51
----- ---
.68 - 3.65 1,247 966
===== ===
Compensation cost charged to operations, which the Company
records for options granted to nonemployees, was $58,000 and
none in the years ended December 31, 1996 and 1995,
respectively. There were 232,805 options outstanding to
nonemployees at December 31, 1996, of which 211,697 were
exercisable.
The Company measures compensation in accordance with the
provisions of APB Opinion No. 25 in accounting for its stock
compensation plans. Accordingly, no compensation cost has
been recorded for options granted to employees or directors
in the years ended December 31, 1996 and 1995. The fair
value of each option granted has been estimated on the grant
date using the Black-Scholes Option Valuation Model. The
following assumptions were made in estimated fair value:
Dividend yield 0%
Risk-free interest rate 6.0%
Expected life after vesting period
Directors and officers 4 years
Others 2 years
Expected volatility through December 1, 1995 60%
December 31, 1996 90%
Had compensation cost been determined under SFAS No. 123,
net income (loss) and income (loss) per share would have
been as follows:
F-26
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
Year ended December 31,
-----------------------
1996 1995
-------- --------
Net income (loss)
As reported $1,598,507 $(6,921,241)
Pro forma for SFAS No. 123 adjustment 1,206,544 (7,120,640)
Income (loss) per share
As reported $.22 $(.94)
Pro forma for SFAS No. 123 adjustment .17 (.97)
The weighted average fair value of options granted during
1996 was $.83 per share.
During 1996, the Company allowed holders of stock options to
reprice their options at then prevailing market prices.
Repriced options were included as new grants for purposes of
determining SFAS No. 123 compensation cost and the weighted
average fair value of options granted during the year. The
weighted average exercise price of repriced options was
$1.46.
The weighted average fair value and weighted average
exercise price of options granted in 1996 for which the
exercise price equals the market price on the grant date
were $.83 and $1.42, respectively. The weighted average
fair value and weighted average exercise price of options
granted in 1996 for which the exercise price exceeded the
market price on the grant date were $.84 and $1.41,
respectively.
During the initial phase-in period of SFAS No. 123, such
compensation expense may not be representative of the future
effects of applying this statement.
In November 1993, the Company granted options to purchase an
aggregate of 447,500 shares of Class A common stock at
option prices of $2.3125-$2.5438 per share for a period of
five to ten years. The grant of these options was
conditional upon a portion (447,500 shares) of the shares
being granted as options to persons who have placed their
shares in escrow should those original escrow shares be lost
due to their inability to accomplish the release of the
shares from escrow. Management attained the required
earnings level in 1994 and accordingly the Company has
obtained the release of escrow shares. These options were
therefore canceled. Certain of these escrow shares were
subsequently returned to the Company and retired (Note H-5)
and the Company has issued new options.
F-27
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
3. Private Placement of the Company's Securities
In December 1993, the Company completed a private placement
of its securities, issuing an aggregate of 160 units at
$45,000 per unit. The net proceeds to the Company, after
commissions and expenses of $1,014,063, were $6,185,937.
Each unit consists of 24,000 shares of the Company's Class A
stock and 12,000 Class D warrants. Each Class D warrant
entitled the bearer to purchase one share of Class A stock
at a cost of $3 per share and expired December 1996. In
addition, the placement agent received an option to purchase
an additional 40 units through December 1998.
4. Reserved Shares
Pursuant to the initial public offering in 1991, the Company
issued a total of 1,500,000 Class A warrants and 750,000
Class B warrants, which expired during 1996. Each Class A
warrant entitled the holder to purchase 1.3 shares of Class
A common stock and 1.3 Class B warrants for $3.386 until
November 12, 1996, the fifth anniversary of such offering.
Each Class B warrant entitled the holder to purchase 1.3
shares of Class A common stock for $5.079 from the date of
issuance to November 12, 1996. The Class A warrants and
Class B warrants (collectively, the "Warrants") were subject
to redemption by the Company at $.05 per Warrant on 30 days'
written notice, provided the closing price of the Class A
common stock for any 30 consecutive trading days, ending
within 15 days of the notice of redemption, averages in
excess of $6.30 with respect to the redemption of Class A
warrants and $9.45 with respect to the redemption of Class B
warrants.
The underwriter or its designees had a five-year option,
which expired in 1996, entitling the holders to purchase up
to 110,094 units at $5.5178 each, as adjusted for the
dilutive effect of the private placement of the Company's
securities, and have registration rights including one
registration at the Company's expense.
The following table summarizes shares of common stock
reserved for issuance at December 31, 1996, as adjusted for
the dilutive effect of the private placement of the
Company's securities:
Number
of shares
Reserved for issuable
------------ --------
Warrants to UPSHER-SMITH for LUBRIN(R)
(expiring December, 1997) 60,000
Warrants to Tsumura for products acquired
(expiring March, 1998) 150,000
Placement agent's options to purchase private
placement units (expiring December, 1998) 960,000
1990 Stock Option Plan 1,479,365
---------
2,649,365
=========
F-28
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
5. Escrow Shares
During fiscal 1993, certain members of the Board of
Directors and certain other parties were conditionally
granted options to purchase an aggregate of 447,500 shares
of Class A common stock. These options were canceled
effective January 1, 1995, due to the release of 450,000
shares of the Company's Class B common stock held in escrow
to such members of the Board of Directors and other persons
upon the Company achieving certain financial performance
tests in fiscal 1994.
On November 2, 1995, the Company announced that 450,000
shares of the Company's Class B common stock released from
escrow to certain members of the Board of Directors of the
Company and other persons upon achieving certain financial
performance tests in fiscal 1994 were to be voluntarily
returned to the Company and retired. The three members of
the Board of Directors who directly received escrow shares
have agreed to return such shares to the Company (418,035 of
the total 450,000). The other parties have been contacted
by the Company and asked to voluntarily return their 31,965
escrow shares. During 1995, two directors returned 364,467
escrow shares to the Company. During 1996, the third
director returned 53,568 escrow shares and other parties
returned a total of 10,323 escrow shares.
As a result of the Company's determination to have such
escrow shares voluntarily returned to the Company and
retired, the Company has granted to such members of the
Board of Directors options to purchase 428,358 shares of
Class A common stock at an exercise price equal to the fair
market value of the shares on the date the escrow shares
were returned to the Company.
6. Reissuance of Class B Shares
On June 2, 1997, the Board of Directors of the Company
authorized the issuance of 254,311 shares of Class B common
stock (the "New Class B Stock") to Daniel Glassman. The New
Class B Stock was issued to Daniel Glassman in
consideration for, among other things, Daniel Glassman's
delivery to the Company, for cancellation, of 254,311 shares
of Class A common stock of the Company. The issuance of the
New Class B Stock to Daniel Glassman was the result of the
Board of Directors' decision to restore management status
quo following the Board's recently learning that Daniel
Glassman had pledged (the "Pledge"), in April 1995, 254,311
shares of Class B common stock then owned by Daniel Glassman
(the "Pledged Shares") to secure certain obligations of
Daniel Glassman to an unaffiliated third-party lender.
Daniel Glassman has delivered to the Company a letter in
which he states that the Pledge was an inadvertent error on
his part and that had he been aware of the potential
ramifications of the Pledge, he would have pledged other
collateral to secure the obligations in question.
Pursuant to the Company's Certificate of Incorporation, as
amended (the "Charter"), the Pledged Shares automatically
converted into shares of Class A common stock upon the
Pledge by Daniel Glassman. Consequently, the number of
outstanding shares of Class B common stock following the
Pledge was reduced from 431,552 shares to 177,241 shares.
Pursuant to the Charter, holders of the Company's Class B
F-29
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
common stock are entitled to elect a majority of the
Company's directors so long as there are at least 325,000
shares of Class B common stock issued and outstanding;
otherwise, all holders of Class A and Class B common stock,
voting as a single class, are entitled to elect all of the
Company's directors. During November 1995, and pursuant to
matters unrelated to the Pledge, an aggregate of 428,358
other shares of Class B common stock were returned to, and
retired by, the Company (see Note H-5). As a result
thereof, the number of outstanding shares of Class B common
stock fell below the aforementioned 325,000 share threshold.
In light of the Company's being unaware of the Pledge,
holders of the Company's Class A and Class B common stock,
voting as separate classes, elected two directors and three
directors, respectively, at the Company's Annual
Stockholders' Meeting held in May 1996 (the "1996 Annual
Meeting"), rather than voting together as a single class to
elect all of the Company's directors. Accordingly, since the
1996 Annual Meeting, only the two directors of the Company
elected by the holders of the Class A common stock (the
"Class A Directors") have been duly and validly elected.
Prior to June 3, 1997, the Company's By-Laws stated that the
Company shall have three directors. Since their election by
stockholders at the 1996 Annual Meetings, the two Class A
Directors, each of whom was an independent director, voted
in favor of all matters approved by the Board of Directors.
Prior to the authorization of the issuance of the New Class
B Stock to Daniel Glassman, the Class A Directors appointed
David Hillman, Secretary of the Company, as the third
director of the Company.
Since the issuance of the New Class B Stock to Daniel
Glassman caused the number of issued and outstanding shares
of Class B common stock to increase to 431,552 shares (above
the 325,000 share threshold set forth in the Company's
Charter), the holders of Class B common stock became
entitled to elect a majority (consisting of three) of the
Company's directors. Following the issuance to Daniel
Glassman of the New Class B Stock, the directors of the
Company amended the Company's By-Laws to provide that the
Board of Directors shall be comprised of five persons and
the holders of the outstanding Class B common stock, acting
separately as a class in accordance with the Company's
Charter, elected, by majority written consent in lieu of a
meeting, Daniel Glassman and Iris Glassman as directors of
the Company and David Hillman was designated as a director
by the holders of the Class B common stock.
At a Special Meeting of Stockholders held in August 1996, it
was reported that an amendment (the "Option Plan Amendment")
to the Company's 1990 Stock Option Plan, as amended (the
"Plan"), had been approved by stockholders increasing, from
1,500,000 shares to 2,600,000 shares, the number of shares
of Class A common stock authorized for issuance under the
Plan. Given the ramifications of the Pledge, and, in
particular, that the 254,311 Class B shares voted in favor
of the Option Plan Amendment by Daniel Glassman were
counted as 1,271,555 votes (giving effect to the 5:1 voting
power attributable to Class B shares) but should have been
counted as only 254,311 shares of Class A common stock
voting in favor of the Option Plan Amendment, there was an
insufficient number of shares of common stock of the Company
voting to approve the Option Plan Amendment. Accordingly,
the Board of Directors has determined to treat the Option
Plan Amendment as having been rejected by the Company's
stockholders. Options under the Plan to acquire an
aggregate of 140,000 shares of Class A common stock granted
by the Company in reliance upon the Option Plan Amendment
having been approved by stockholders have been returned
voluntarily to the Company by the relevant optionees for
cancellation. As a consequence of believing, in good faith,
that the Option Plan Amendment had been approved by
F-30
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE H (CONTINUED)
stockholders, between August 15, 1996 and December 31, 1996,
there were outstanding options to acquire under the Plan in
excess of 1,500,000 shares of Class A common stock. As a
result of options to acquire an aggregate of 423,354 shares
of Class A common stock under the Plan being canceled during
1996 due to optionees leaving the employ of the Company,
there are outstanding, as of September 30, 1997, options to
acquire an aggregate of 1,489,845 shares of Class A common
stock under the Plan. At a Special Meeting of Stockholders
held in August 1997, an amendment to the Company's 1990 Stock
Option Plan, as amended, was approved by stockholders
increasing, from 1,500,000 shares to 2,600,000 shares, the
number of shares of Class A Common Stock authorized for
issuance under the Plan.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases office facilities in Fairfield, New
Jersey from Daniel and Iris S. Glassman, directors and
shareholders of the Company, and in Westbury, New York.
The lease on the Fairfield, New Jersey facility is for a
period from August 1, 1997 to July 31, 1998 for 14,120
square feet of office and warehouse space, with an option to
renew and also includes payments of electric, water and
sewer and the allocated portion of the real estate taxes.
Rent expense, including an allocated portion of real estate
taxes, was approximately $176,000 and $173,000 for the years
ended December 31, 1996 and 1995, respectively.
The term of the lease occupied by Doak in Westbury, New York
is three years expiring January 31, 1997, and contains a
monthly rental payment of approximately $4,800. This
agreement was extended to January 31, 1999 and contains a
monthly rental payment of $5,000. From May 1994 to October
1994, the lease payments for such property were suspended
pending further investigation of the environmental matters
discussed below.
Approximate aggregate minimum annual rental commitments,
including rent and real estate taxes, are as follows:
$151,000 for 1996, $60,000 for 1997 and $5,000 for 1999.
Total rent expense for the years ended December 31, 1996 and
1995 was $301,000 and $282,000, respectively.
2. Research and Development Agreement
The Company is required to file an ANDA with the FDA for its
DECONAMINE(Registered Trademark) SR product. The cost of
developing the necessary studies for this application is
estimated to be approximately $900,000. The Company has
signed an agreement for the first phase of these studies at
a cost of approximately $100,000; approximately $48,000 was
incurred during 1995 and charged to operations and the
balance of $52,000 has been satisfied utilizing funds
previously paid for projects canceled during 1996. The
project is expected to be completed and submitted to the FDA
during 1998.
F-31
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE I (CONTINUED)
However, these research and development projects are subject
to the Company either generating sufficient cash flows from
operations or obtaining requisite financing from outside
sources, of which there can be no assurance. Therefore, the
Company cannot at this time reasonably anticipate the timing
of the expenditure of funds for these purposes. The
inability of the Company to further develop and/or file the
necessary ANDA for DECONAMINE(Registered Trademark) SR would
have a material adverse effect on the Company.
3. Environmental Matters
On April 8, 1994, the Company was apprised by the New York
State Department of Environmental Conservation ("NYSDEC")
that Doak's current leased manufacturing facility located on
adjoining parcels at 62 Kinkel Street and 67 Sylvester
Street, Westbury, New York and former leased facility
located at 128 Magnolia Avenue, Westbury, New York are
located in the New Cassel Industrial Area, which has been
designated by the NYSDEC on the Registry of Inactive
Hazardous Waste Sites (the "Registry"). The real property
on which Doak's current manufacturing facility is situated
is owned by and leased to the Company by Dermkraft, Inc., an
entity owned by the former controlling shareholders and
officers of Doak.
On February 7, 1995, the Company was apprised by NYSDEC that
the current manufacturing facility will be excluded from the
Registry. By letter dated April 21, 1995, the NYSDEC
notified the Company that it intended to investigate the
Company's current manufacturing facility to determine if
hazardous substances had previously been deposited on that
property. By letter dated October 24, 1995, NYSDEC notified
Dermkraft, Inc. that the Company's current manufacturing
facility is included in or near an inactive hazardous waste
site described as "Kinkel and Sylvester Streets" and that
NYSDEC intends to conduct a Preliminary Site Assessment to
study the site and immediate vicinity. The Company has been
advised that NYSDEC has made a preliminary determination to
include the 62 Kinkel Street portion of the current
manufacturing facility on the Registry and that the 67
Sylvester Street portion of the facility will not be
included, but those determinations could change before they
are finalized. Thereafter, by letter dated May 3, 1996 and
addressed to Dermkraft, Inc., the NYSDEC notified Dermkraft
that the site at 62 Kinkel Street has been listed on the
Registry due to the presence of trichloroethylene ("TCE") in
soils and groundwater due to the use of TCE by LAKA Tools
and Stamping and LAKA Industries, a former tenant from 1971
through 1984. The NYSDEC documents refer to Doak
Dermatologics as the current tenant but do not refer to any
activities of Doak Dermatologics or the Company as a basis
for the listing in the Registry. The Company cannot at this
time determine whether the cost associated with the
investigation and required remediation, if any, of the
current manufacturing facility will be material. With
respect to the former manufacturing facility on Magnolia
Avenue, which remains designated by the NYSDEC as part of
the Registry, management believes that Doak will not be
obligated to contribute to any remediation costs, if any are
required.
4. Consulting Agreements
The Company entered into consulting agreements with the
sellers of Doak that provide for monthly payments of $8,333
from April 1994 through March 1997. The amounts due under
such agreements have been accrued for at December 31, 1995,
as the parties have ceased providing services.
F-32
<PAGE>
Bradley Pharmaceuticals, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995, and June 30, 1997 and 1996
(Information with respect to June 30, 1997 and the
six months ended June 30, 1997 and 1996 is unaudited)
NOTE I (CONTINUED)
5. Legal Proceedings
The Company and Doak have been named defendants in a lawsuit
filed November 29, 1996. The complaint alleges that the
Company and Doak were negligent in their hiring and
supervising an employee who in turn allegedly assaulted the
plaintiff. The complaint seeks $600,000 in compensatory and
$1,000,000 in punitive damages. The Company believes that
it has meritorious defenses.
6. Trans CanaDerm Settlement
On June 5, 1996, Trans CanaDerm, Inc. ("Trans CanaDerm"),
Louis Vogel ("Vogel"), the former controlling stockholder of
Trans CanaDerm, and other former stockholders of Trans
CanaDerm (collectively, "Plaintiffs") commenced an action
against the Company and its subsidiary, Doak Dermatologics
("Doak"), in the United States District Court for the
Southern District of New York, 96 Civ. 4175 (JFK). The
------------------
complaint alleged that in 1957 Doak and Vogel entered into
an agreement (the "Agreement") under which Vogel was given
the sole and exclusive right to distribute Doak's products
in Canada, which Agreement was thereafter assigned by Vogel
to Trans CanaDerm. In May 1996, Vogel and the other Trans
CanaDerm stockholders sold their stock in Trans CanaDerm to
Stiefel Canada, Inc. ("Stiefel"), a competitor of the
Company. Shortly thereafter, the Company and Doak
terminated the Agreement. The complaint alleged: (i) that
the termination was wrongful, (ii) that the Company and Doak
tortiously interfered with the contract between the former
stockholders and Stiefel, and (iii) that the Company and
Doak should be equitably estopped from terminating the
Agreement. The complaint sought an injunction restraining
the Company and Doak from terminating the Agreement and
compensatory and punitive damages in unspecified amounts.
On September 30, 1996, the Company and Doak entered into a
settlement agreement with the Plaintiffs. Pursuant to the
settlement, the Company received $2 million relating to the
sale of the Company's independent Canadian distributor,
Trans CanaDerm, Inc., of which the Company did not have an
ownership position, to Stiefel, a competitor of the Company,
and the Company transferred to Trans CanaDerm all of the
Company's rights, title and interest in certain Doak
products in Canada. Direct expenses related to this
transaction were $354,868.
Trans CanaDerm currently distributes several Doak products,
as well as other unrelated brands in Canada, and by virtue
of the foregoing transfer and payment, Trans CanaDerm will
continue to market the Doak product line in Canada. Trans
CanaDerm also has agreed to continue to purchase certain
materials used in connection with the manufacture of the
transferred Doak products through December 31, 1997.
7. 401(k) Plan
Effective January, 1997, the Company established a defined
contribution 401(k) plan whereby the Company matches
employee contributions up to 25% of the employee's first 6%
of contributions with shares of the Company's Class A common
stock.
F-33
<PAGE>
NOTE J - FOURTH QUARTER ADJUSTMENTS
The Company recorded the following significant adjustments
in the fourth quarter of 1995:
- Valuation allowance $150,000
- Additional accrual for chargebacks and 500,000
rebates
- Recording of remaining commitment of
consulting agreements 125,000
- Write-down of certain inventory and
capitalized promotional items due to
obsolescence 200,000
- Effect on pretax loss $975,000
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that the Company shall,
to the fullest extent permitted by Section 14A:3-5(8) of the
NJBCA, indemnify all corporate agents (including the Company's
officers and directors) against their expenses and liabilities in
connection with any proceeding involving them by reason of their
being or having been corporate agents. This indemnification
right is not deemed exclusive of any other right to which
corporate agents may be entitled under any other statute or any
By-law, agreement or vote of stockholders and shall continue as
to a person who has ceased to be a corporate agent and shall
inure to the benefit of the heirs, executors, administrators and
personal representatives of a corporate agent. No
indemnification, however, shall be made to or on behalf of a
corporate agent if a judgment or other final adjudication adverse
to the corporate agent establishes that his acts or omissions (i)
were in breach of his duty of loyalty to the Company or its
stockholders, (ii) were not in good faith or involved a knowing
violation of law or (iii) resulted in receipt by the corporate
agent of an improper personal benefit.
Section 14A:3-5(8) of the NJBCA permits a corporation to
indemnify any corporate agent (including officers and directors)
against expenses and liabilities incurred in connection with any
proceeding brought by reason of the fact that such person is or
was a director or officer of the corporation, other than a
proceeding by or in the right of the corporation, if such person
acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, if he or she had no reasonable cause to believe his
or her conduct was unlawful. In a derivative action,
indemnification may be made only for expenses incurred by any
director or officer in connection with the defense or settlement
of an action or suit, if such person has acted in good faith and
in a manner that he or she reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been
adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought
shall determine upon application that the defendant is reasonably
entitled to indemnification for such expenses despite such
adjudication of liability.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be
incurred in connection with the offering described in this
Registration Statement.
SEC registration fee . . . . . $ 1,010.00
Nasdaq National Market
additional listing fee . . . 9,000.00
Accounting fees and expenses . 20,000.00
Legal fees and expenses . . . 25,000.00
Miscellaneous . . . . . . . . 4,990.00
-----------
Total . . . . . . . . . . . $ 60,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During December 1996 and September 1997, the Company issued
an aggregate of 1,450,000 shares of Class A Common Stock to
Berlex in connection with the restructuring of the Company's
monetary obligations owing to Berlex arising out of the Company's
1993 acquisition of the DECONAMINE(R) product line (1,000,000
shares were issued in December 1996 and 450,000 shares were
issued in September 1997). The December 1996 issuance was in
consideration of approximately $2,230,000 of indebtedness then
outstanding to Berlex and the September 1997 issuance was in
consideration of approximately $1,350,000 of indebtedness then
outstanding to Berlex. Section 4(2) of the Securities Act
provides an exemption for the Company for the stock issuances
to Berlex described above.
II-1
<PAGE>
ITEM 27. EXHIBITS.
3.1 Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibit
3.1 to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1996)
3.2 By-laws of the Registrant, as amended
(Incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996)
4.1 Placement Agent's Unit Purchase Option
(Incorporated by reference to Exhibit 4.5 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1993)
5.1 Opinion of Reid & Priest LLP
10.1 1990 Stock Option Plan, as amended
(Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996
10.2 Form of 11% Subordinated Note dated June 14,
1990 (Incorporated by reference to exhibit 10.6
to the Company's Registration Statement on Form
S-1, Registration No. 33-36120)
10.3 Asset Purchase Agreement between the Company
and Hoechst Roussel Pharmaceuticals
Incorporated (Incorporated by reference to
Exhibit 10.10 to the Company's Registration
Statement on Form S-1, Registration No. 33-
36120)
10.4 Asset Purchase Agreement dated December 15,
1992 between the Company, Upsher Smith and
Kenneth Evenstad (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on
Form 8-K for an event dated December 15, 1992)
10.5 Manufacturing Agreement dated December 15, 1992
between the Company, Upsher Smith and Kenneth
Evenstad (Incorporated by reference to Exhibit
10.2 to the Company's Current Report on Form 8-
K for an event dated December 15, 1992)
10.6 Asset Purchase Agreement dated March 30, 1993
between the Company and Tsumura Medical Inc.
(Incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1992)
10.7 Trademark Security Agreement dated March 30,
1993 between the Company and Tsumura
International Inc. (Incorporated by reference
to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1993)
10.8 Purchase Agreement dated November 10, 1993
between Berlex and the Company, as amended by
Amendments Numbers One and Two thereto, dated
November 19, 1993 and December 9, 1993,
respectively (Incorporated by reference to
Exhibits 10.1 through 10.3 to the Company's
Current Report on Form 8-K for an event dated
December 10, 1993)
10.9 Trademark Security Agreement dated December 9,
1993 between Berlex and the Company
(Incorporated by reference to Exhibit 10.4 to
the Company's Current Report on Form 8-K for an
event dated December 10, 1993)
10.10 Supply and Distribution Agreement dated
December 9, 1993 between Berlex and the Company
(Incorporated by reference to Exhibit 10.5 to
the Company's Current Report on Form 8-K for an
event dated December 10, 1993)
10.11 Stock Purchase Agreement dated as of January
31, 1994 among the Company, Doak and the
Krafchuks (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-
K for an event dated February 14, 1994)
10.12 Form of Plan of Merger dated as of January 31,
1994 between Doak and the Company (Incorporated
by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K for an event dated
February 14, 1994)
10.13 Consulting Agreement dated as of January 31,
1994 between the Company and Dr. Krafchuk
(Incorporated by references to Exhibit 10.3 to
the Company's Current Report on form 8-K for an
event dated February 14, 1994)
10.14 Consulting Agreement dated as of January 31,
1994 between the Company and Mrs. Krafchuk
(Incorporated by reference to Exhibit 10.4 to
the Company's Current Report on Form 8-K for an
event dated February 14, 1994)
10.15 Lease Modification Agreement dated as of
February 1994 between Dermkraft, Inc, and Doak
(Incorporated by reference to Exhibit 10.6 to
the Company's Current Report on Form 8-K for an
event dated February 14, 1994)
10.16 Purchase and Assignment Agreement between
Upjohn and the Company. (Incorporated by
reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993)
II-2
<PAGE>
10.17 Amendment No. 4 dated January 6, 1996 to the
Asset Purchase Agreement dated November 10,
1993 between Berlex Laboratories, Inc. and the
Company (Incorporated by reference to Exhibit
10.1 to the Company's current Report on Form 8-
K for an event dated January 5, 1996)
10.18 Security Agreement, dated as of January 5,
1995, between the Company and Berlex
Laboratories, Inc. (Incorporated by reference
to Exhibit 10.2 to the Company's Current Report
on Form 8-K for an event dated January 5, 1996)
10.19 Amendment to Trademark Security Agreement,
dated as of January 5, 1995, between the
Company and Berlex Laboratories, Inc.
(Incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K for an
event dated January 5, 1996)
10.20 Settlement Agreement, dated as of September 30,
1996, among the Company, Stiefel Canada, Inc.,
Trans CanaDern, Inc. and Louis Vogel et. al.
(Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K for an
event dated September 30, 1996)
10.21 Amendment No. 5 dated as of December 23, 1996,
to Asset Purchase Agreement between the Company
and Berlex (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on
Form 8-K for an event dated December 23, 1996).
10.22 Security Agreement and subsidiary Security
Agreement, dated as of December 23, 1996, among
Doak Dermatologics, Inc. and Berlex
(Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K for an
event dated December 23, 1996).
10.23 Confession of Judgement from the Company and
Doak Dermatologics, Inc. with respect to the
March 1997 payment (Incorporated by reference
to Exhibit 10.3 to the Company's Current Report
on Form 8-K for an event dated December 23,
1996).
10.24 Amendment No. 6 to Asset Purchase Agreement,
dated as of September 19, 1997, between the
Company and Berlex
10.25 Warrant to Purchase up to 750,000 Shares of
Class A Common Stock of the Company issued to
Berlex
10.26 Loan and Security Agreement, dated as of
September 19, 1997, among CIT, the Company,
Doak, Bradley Pharmaceuticals (Canada), Inc.
and Bradley Pharmaceuticals Overseas, Ltd.
10.27 Assignment, Security Agreement and Mortgage -
Trademarks and Patents, dated as of September
19, 1997, between the Company and CIT
10.28 Assignment, Security Agreement and Mortgage -
Trademarks, dated as of September 19, 1997,
between Doak and CIT
10.29 Guaranty dated September 19, 1997 of Daniel
Glassman Issued to CIT
11.1 Statement Regarding Computation of Per Share
Income (Incorporated by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1996)
21.1 Subsidiaries of the Registrant (Incorporated by
reference to Exhibit 21.1 to the Company's
Annual Report on Form 10-KSB for the year ended
December 31, 1996)
23.1 Consent of Reid & Priest LLP (included in
Exhibit 5.1)
23.2 Consent of Grant Thornton LLP
24.1 Power of Attorney (see page II-5)
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes:
(a) To file, during any period in which it offers or
sells securities, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events which, individually or together, represent a fundamental
change in the information in the registration statement; and
(iii) To include any additional or changed
material on the plan of distribution.
II-3
<PAGE>
(b) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
For determining any liability under the Securities Act, the
Company will treat the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
For determining liability under the Securities Act, the
Company will treat each post-effective amendment as a new
registration statement for the securities offered, and the
offering of the securities at that time to be the initial bona
fide offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form
SB-2 and authorized this Registration Statement to be signed on
its behalf by the undersigned, in the City of Fairfield, State of
New Jersey, on this 14th day of October, 1997.
BRADLEY PHARMACEUTICALS, INC.
/s/ Daniel Glassman
-----------------------------
Daniel Glassman
Chairman of the Board,
President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Daniel Glassman
and Iris S. Glassman, or either of them his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
connection with the above premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following
persons in the capacities and on the dates stated.
Signatures Title Date
---------- ----- ----
/s/ Daniel Glassman
--------------------------- Chairman of the October 14, 1997
Daniel Glassman Board,
President and
Chief Executive
Officer
(Principal
Executive Officer)
/s/ Iris S. Glassman
--------------------------- Director October 14, 1997
Iris S. Glassman
/s/ David Hillman
--------------------------- Director October 14, 1997
David Hillman
/s/ Philip W. McGinn, Ph.D.
--------------------------- Director October 14, 1997
Philip W. McGinn, Ph.D.
/s/ Alan Wolin, Ph.D.
--------------------------- Director October 14, 1997
Alan Wolin, Ph.D.
/s/ Lawrence R. Lenz
--------------------------- Vice President and October 14, 1997
Lawrence R. Lenz Chief Financial
Officer
(Principal
Financial and
Accounting
Officer)
II-5
<PAGE>
EXHIBIT INDEX
-------------
5.1 Opinion of Reid & Priest LLP
10.24 Amendment No. 6 to Asset Purchase Agreement, dated as
of September 19, 1997, between the Company and Berlex
10.25 Warrant to Purchase up to 750,000 Shares of Class A
Common Stock of the Company issued to Berlex
10.26 Loan and Security Agreement, dated as of September
19, 1997, among CIT, the Company, Doak, Bradley
Pharmaceuticals (Canada), Inc. and Bradley
Pharmaceuticals Overseas, Ltd.
10.27 Assignment, Security Agreement and Mortgage -
Trademarks and Patents, dated as of September 19,
1997, between the Company and CIT
10.28 Assignment, Security Agreement and Mortgage -
Trademarks, dated as of September 19, 1997, between
Doak and CIT
10.29 Guaranty dated September 19, 1997 of Daniel Glassman
Issued to CIT
23.1 Consent of Reid & Priest LLP (included in Exhibit
5.1)
23.2 Consent of Grant Thornton LLP
24.1 Power of Attorney (see page II-5)
Exhibit 5.1
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019-4097
Telephone 212 603-2000
Fax 212 603-2001
(212) 603-2000
New York, New York
October 14, 1997
Bradley Pharmaceuticals, Inc.
383 Route 46 West
Fairfield, New Jersey 07004
Re: Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
As counsel for Bradley Pharmaceuticals, Inc., a
New Jersey corporation (the "Company"), we have been
requested to furnish our opinion as to the matters
hereinafter set forth relating to the proposed offering to
the public pursuant to the registration statement of the
Company on Form SB-2, as the same may be amended (the
"Registration Statement"), of up to 1,450,000 shares of
Class A common stock, no par value per share, of the
Company (the "Shares"), to be sold by Berlex Laboratories,
Inc. ("Berlex"), the Selling Stockholder listed in the
Registration Statement.
In connection therewith, we have examined, among
other things, the Certificate of Incorporation and By-Laws
of the Company, each as amended, and the various
proceedings taken by the Company in connection with the
filing of the Registration Statement and the proposed sale
by Berlex, pursuant to the Registration Statement, of the
Shares. In addition, we have examined such other
agreements, documents, certificates and instruments, and
made such further investigations as we have deemed
necessary as a basis for the opinions set forth below. In
our examinations of all such agreements, documents,
certificates and instruments, we have assumed the
genuineness of all signatures and the authenticity of all
agreements, documents, signatures and instruments submitted
to us as originals and the conformity with the originals of
all agreements, instruments, documents and certificates
submitted to us as copies.
Based upon the foregoing, and having regard for
such legal considerations as we deem relevant, we are of
the opinion that:
1. The Company is a corporation duly
incorporated and existing in good standing under the laws
of the State of New Jersey.
2. The Shares being sold by Berlex pursuant to
the Registration Statement have been duly authorized,
issued and delivered to Berlex and upon the sale of such
Shares by Berlex in accordance with the terms of the
Registration Statement, will continue to be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the
references to us contained therein under the heading "Legal
Matters." In giving the foregoing consent, we do not
thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act
of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
AMENDMENT NO. 6 TO ASSET PURCHASE AGREEMENT dated as of
September 19, 1997, between BRADLEY PHARMACEUTICALS, INC., a New
Jersey corporation ("Purchaser"), and BERLEX LABORATORIES, INC.,
a Delaware corporation ("Seller", and, together with Purchaser,
the "Parties").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser and Seller previously entered into an
Asset Purchase Agreement dated as of November 10, 1993 as amended
by Amendment Nos. 1 and 2 thereto, by letter agreement dated
December 11, 1995, by Amendment No. 4 thereto dated as of January
5, 1996, by Amendment No. 5 thereto ("Amendment No. 5") dated as
of December 23, 1996 and by letter agreement (the "Letter
Agreement") dated May 12, 1997 (collectively, the "Original Asset
Purchase Agreement"), and desire to further amend the Original
Asset Purchase Agreement as provided herein (the Original Asset
Purchase Agreement as amended hereby and as may be further
amended, restated, supplemented or otherwise modified from time
to time is hereinafter referred to as the "Agreement").
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and the
respective agreements hereinafter set forth, the Parties agree as
follows:
I. Defined Terms.
-------------
1. Capitalized terms used and not defined herein and
defined in the Original Asset Purchase Agreement shall have the
meanings ascribed to such terms in the Original Asset Purchase
Agreement. When used in the Agreement, the term "Agreement"
means the Agreement as defined above.
2. The following definitions shall be added to Section
1.01 of the Agreement:
"Amendment No. 6" shall mean Amendment No. 6
to the Agreement.
"Class A Stock" shall mean the class A common
capital stock of Purchaser.
"Class B Stock" shall mean the class B common
capital stock of Purchaser.
"1997 Shares" shall mean four hundred fifty
thousand (450,000) shares of Class A Stock to be issued
by Purchaser to Seller pursuant to the Letter Agreement
and this Amendment No. 6.
"Rule 144" shall mean Rule 144 promulgated under
the Securities Act of 1933, as amended.
"Warrant" shall mean the Warrant in the form
attached hereto as Exhibit A, with such modifications
---------
as the parties shall have agreed to in writing on or before
the issuance thereof pursuant to Section 6.16 of the
Agreement.
"Warrant Shares" shall mean the shares of
Class A Stock to be issued by Purchaser upon the
exercise of any of the Warrants.
3. The term "Effective Date" shall mean the date on which
this Amendment No. 6 is effective and all of the conditions
precedent to the effectiveness hereof as described at Section 11
of this Amendment No. 6 shall have occurred.
II. Payment. 1. Section 2.03(g) of the Agreement is hereby
-------
amended and restated in its entirety as follows:
"(g) Purchaser shall pay and deliver to Seller:
a. the sum of $1.15 million, plus accrued
interest thereon in accordance with the terms of
the Agreement in the amount of $73,954.45, which
shall be paid via wire transfer of immediately
available funds to an account designated by Seller
on the Effective Date (the "Effective Date
Payment"); and
b. certificates representing the 1997
Shares which shall be delivered to Seller on the
Effective Date (evidencing forty-five thousand
(45,000) shares each, i.e. ten (10) certificates).
Upon the payment in full and the delivery of the 1997
Shares by Purchaser in accordance with this Subsection
2.03(g), Seller's security interest in the Collateral
described in the Trademark Security Agreement shall
terminate. Seller shall take all steps reasonably
necessary or desirable to effect a release of such
security interests. Purchaser hereby acknowledges that
the 1997 Shares have value as of the date hereof and
are a material part of the consideration to be received
by Seller.
2. The provisions of Section 2.03(l) of the Agreement is
hereby amended and restated in its entirety as follows:
"For all purposes of the Agreement (including, without
limitation, Sections 11.01(i) and 11.02 of the Agree-
ment), (a) Purchase Price payment or Purchase Price
payments or Purchase Price Payments shall mean the
payment required pursuant to clause (g)(i), and (b) the
payment referred to in the immediately preceding clause
(a) constitutes part of the Purchase Price. Unless
otherwise stated in writing by Seller, the account
designated by Seller to which the Effective Date
Payment and any other payments due hereunder shall be
made is an account in the name of Berlex Laboratories,
Inc., Mellon Bank, Pittsburgh, PA, Account No.
#0009902, ABA #043000261."
III. Restriction on Transfer of Class B Stock. Purchaser
----------------------------------------
hereby acknowledges that Daniel Glassman has agreed not to
encumber, pledge, sell or otherwise transfer any interest in any
Class B Stock directly owned by him (other than a transfer of his
Class B Stock upon death to his family member or affiliate who is
then a holder of Class B Stock, which transferred Class B Stock
shall continue to be subject to the restrictions contained in
this Section 3) until such time as (a) a Registration Statement
relating to the Shares and the 1997 Shares has been declared
effective by the Commission, and (b) the Warrant has been issued,
in each case in accordance with the terms hereof. Purchaser
hereby agrees to use its best efforts not to permit the transfer
of any such Class B Stock until the events described in clauses
(a) and (b) above have occurred and represents that as of the
date hereof, Dan Glassman directly owns 254,311 shares of Class B
Stock. Purchaser hereby agrees to place a legend with respect to
the foregoing (which shall be reasonably acceptable to Seller) on
all Class B Stock directly owned by Daniel Glassman.
IV. Restrictions on Transfer of 1997 Shares. Seller
---------------------------------------
acknowledges that the 1997 Shares cannot be sold or transferred
except pursuant to an effective registration statement under the
Act as defined in Section 5 of this Amendment No. 6 or a valid
exemption from such registration. Seller agrees that prior to
Seller offering for sale, transfer or assignment some or all of
the 1997 Shares in a private sale (which shall be deemed to
exclude sales pursuant to Rule 144) either through a sale on
NASDAQ or on a national securities exchange (an "Open Market
Sale") or a sale at which the price per share is determined or to
be determined by an agreement, written or otherwise, between
Seller and the prospective buyer of such shares, not on NASDAQ or
on a national securities exchange (an "Agreed Upon Sale"), (1997
Shares to be offered for sale by Seller are herein referred to as
the "Offered Shares"), Seller shall provide Purchaser with the
opportunity to purchase the Offered Shares at the Sales Price
(herein defined). Purchaser shall exercise such opportunity by
making payment of cash to Seller within five (5) Business Days
from Purchaser's receipt of the Sales Notice (herein defined)
provided that Purchaser shall, at Seller's request, provide prior
to such payment evidence reasonably satisfactory to Seller that
(A) the purchase of such Offered Shares by Purchaser will not
constitute a purchase in violation of applicable corporate or
other applicable law and (B) there will not occur within ninety-
one (91) days after the date of such payment any of the events
described in Section 11.01(iv) or (v) hereof. In the event
Seller makes such a request, such five (5) Business Day period
shall be extended by such time as is reasonably required for
Purchaser to comply with (A) and (B) above (but in no event more
than two (2) additional Business Days). If Purchaser fails to
pay for the Offered Shares within five (5) Business Days (as the
same may be extended) of Purchaser's receipt of the Sales Notice,
Seller may sell such Offered Shares during the next thirty (30)
days, in the case of an Agreed Upon Sale, or ninety (90) days in
the case of an Open Market Sale, free of any right whatsoever of
Purchaser to purchase the Offered Shares; provided however, that
the sale of the Offered Shares shall, on an Open Market Sale, be
made on NASDAQ or on a national securities exchange and in the
event of an Agreed Upon Sale be made at a price not less than the
Offer Price (as defined below). In the event Seller does not
sell the Offered Shares within such thirty (30) (or ninety (90))
day period, the rights contained in this Section 4 shall continue
to apply to any proposed private sale by Seller of the Shares as
if no Sales Notice had been given. "Sales Price" means (i) in
the case of an Open Market Sale, the price per share which is
equal to the average of the bid and asked price published in the
Wall Street Journal on the Business Day before the Sales Notice
is sent by Seller to Purchaser (or if there is no bid and asked
price on such last Business Day, on the most recent day on which
a bid and asked price had been published in the Wall Street
Journal) or (ii) in the case of an Agreed Upon Sale, the price
per share at which Seller proposes to sell the Offered Shares
(the "Offered Price"). The Sales Notice shall be a written
notice entitling Purchaser to purchase the Offered Shares within
such five Business Day period and may be sent to Purchaser by
fax, overnight mail (by federal express, DHL or some other
similar service), personal delivery and/or certified mail, return
receipt requested and, in the case of an Agreed Upon Sale,
contain the price per share at which Seller proposes to sell the
Offered Shares. Purchaser's right to buy the Offered Shares
shall not apply if the Purchaser's common stock is not listed on
NASDAQ or any national securities exchange. The only restrictive
legend to be included on the 1997 Shares shall be the following
legend: "The shares of Class A Common Stock represented by the
Certificate have not been registered under the Securities Act of
1933, and cannot be sold or transferred unless and until they are
so registered, or unless an exemption is then available." Upon
the request of Seller, after (a) the effectiveness of a
Registration Statement relating to the Shares and the 1997
Shares, or, (b) with respect to a sale made in compliance with
Rule 144, after Seller has delivered to Purchaser an opinion of
counsel reasonably satisfactory to Purchaser to the effect that
such sale or transfer is exempt from registration under the Act
as defined in Section 5 of this Amendment No. 6, such restrictive
legend shall be removed from the Certificates then owned by
Seller. No buyer of any of the 1997 Shares shall have any
obligation to determine whether Seller has complied with the
provisions of Section 4 hereof and no claim can be asserted
against any such buyer in connection therewith, provided that the
preceding part of this sentence shall not in any manner excuse
any breach by Seller of its obligations to comply with Section 4
hereof. Once the 1997 Shares are sold to a third party,
Purchaser shall have no rights under this Section 4 hereof with
respect to such transferred Shares.
V. Registration Rights.
-------------------
A. Defined Terms. As used in this Section 5 the
-------------
following terms shall have the following respective meanings:
1. "Act" shall mean the Securities Act of 1933,
as amended, or any similar federal statute and the rules and
regulations thereunder, all as the same shall be in effect from
time to time;
2. "Commission" shall mean the Securities and
Exchange Commission, or any other federal agency at the time
administering the securities laws;
3. "Prospectus" shall mean any preliminary
Prospectus and final Prospectus (as such may be amended or
supplemented) which constitutes Part I of a Registration
Statement filed with the Commission;
4. "Registration Expenses" shall mean all
expenses arising out of or related to the preparation, filing,
amendment(s) and supplementing(s) of a Registration Statement,
provided, however, that Registration Expenses shall not include
underwriting commission, fees and discounts, if any, attributable
solely to the inclusion of Seller's shares in such Registration
Statement, and any legal fees and disbursements for counsel to
Seller;
5. "Registration Statement" shall mean a regis-
tration statement filed by the Purchaser with the Commission for
a public offering and sale of securities of the Purchaser.
6. "Shares" shall have the meaning given it in
Amendment No. 5.
B. Purchaser's Registration. 1. Purchaser agrees
------------------------
that at Purchaser's sole expense, Purchaser shall, (i) use its
best efforts to file, on or prior to September 30, 1997, on its
behalf and on behalf of Seller with respect to the Shares and the
1997 Shares a Registration Statement in accordance with the Act;
and (ii) use its best efforts to cause such Registration
Statement to be declared effective by the Commission as soon
thereafter as reasonably practicable, but in all events use its
best efforts to cause such Registration Statement to be declared
effective not later than September 19, 1998.
2. Purchaser agrees that at Purchaser's sole
expense, Purchaser shall, (i) no later than one hundred twenty
(120) days following a written demand from Seller for
registration, which demand may only be made during the three (3)
year period commencing on the first day that the Warrant is
exercised, file on its behalf and on behalf of Seller with
respect to the Warrant Shares specified in such demand a
Registration Statement in accordance with the Act; and (ii) use
its best efforts to cause such Registration Statement to be
declared effective by the Commission as soon thereafter as
reasonably practicable, but in all events use its best efforts to
cause such Registration Statement to be declared effective not
later than two hundred ten (210) days thereafter. Purchaser
shall be obligated to prepare, file and cause to become effective
only two (2) Registration Statements pursuant to this Subsection
5.2(b). A registration required to be effected by Purchaser
pursuant to Subsection (a) of Amendment No. 6 or this Subsection
(b) shall not be deemed to have been effected even though a
Registration Statement with respect thereto has become effective
(1) if, after it has become effective, such registration is
interfered with by any stop order, injunction, or other order or
requirement of the Commission or other governmental agency or
court, for any reason not attributable to Seller with respect to
such Registration Statement, and has not thereafter become
effective or (2) if the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by
reason of a failure on the part of Seller with respect to such
Registration Statement.
3. If and whenever Purchaser proposes to
register any of Class A Stock (or securities convertible into or
exercisable for Class A Stock) under the Act for its own account
or the account of any stockholder of Purchaser (a "Piggyback
Registration"), Purchaser shall give prompt notice to Seller of
its intention to effect such a registration and, subject to the
remainder of this Subsection 5.2(c), shall include in such
registration all Shares, 1997 Shares and Warrant Shares with
respect to which Purchaser has received a written request from
Seller (which request shall specify the number of Shares, 1997
Shares and Warrant Shares for inclusion therein) within thirty
(30) days after receipt by Seller of Purchaser's notice. If a
Piggyback Registration involves an underwritten offering and if
the managing underwriter in good faith advises Purchaser (in
writing) that in its opinion the number of securities requested
to be included in such Piggyback Registration exceeds the number
that can be sold in such offering without materially adversely
affecting the marketability of such offering or the price at
which such securities can be sold, then Purchaser shall be
required to include in such Piggyback Registration the maximum
number of shares that such underwriter advises can be included,
allocated pro rata on the basis on the number of shares each
stockholder (including Seller) and Purchaser requests be included
in such registration.
C. Registration Procedures. With respect to
-----------------------
Purchaser's obligations under this Section 5, if Purchaser is
required to use its best efforts to effect and/or continue the
registration of the Shares, the 1997 Shares or the Warrant Shares
under the Act (whether in connection with a Piggyback
Registration or otherwise), the Purchaser shall:
1. File with the Commission a Registration
Statement with respect to such Shares, 1997 Shares and Warrant
Shares under and subject to Subsection 5.4(b) of this Amendment
No. 6, use its best efforts to cause that Registration Statement
to become and remain effective.
2. As expeditiously as possible prepare and file
with the Commi(c)^X^A are to undertake the sale and distribution
of the Shares, the 1997 Shares and the Warrant Shares to be
included in a Registration Statement filed in connection with any
registration other than a Piggyback Registration under the
provisions of this Section 5.
3. Purchaser, in connection with a Piggyback
Registration or a demand registration under Subsection 5.2(b) of
this Amendment No. 6, shall have the right to require, if the
offering is to be underwritten and includes securities being
offered for the account of Purchaser, that Seller delay any
offering of the Shares, the 1997 Shares and the Warrant Shares to
be included on its behalf for a reasonable period of time not to
exceed ninety (90) days (the "Delay Period") after the effective
date of such Registration Statement (upon Purchaser first having
delivered to Seller the written opinion of its managing or
principal underwriter to the effect that the inclusion of such
securities in the Registration Statement will have a material
adverse effect on the marketing of such offering); provided,
however, that all officers, directors and five percent (5%) or
greater stockholders of Purchaser also delay offering securities
to be sold on their behalf for such reasonable period of time.
Any additional expenses incurred by reason of the delayed
registration of such securities (such as the necessity to file a
post-effective amendment) shall be borne solely by Purchaser.
4. Purchaser shall be required to keep the
Registration Statement effective (for which purpose the Purchaser
shall be required to prepare and file such amendments and supple-
ments to the Registration Statement and Prospectus used in
connection therewith as may be necessary to keep the Registration
Statement effective) for the period set forth in Subsection
5.3(b) of this Amendment No. 6, pursuant to which Seller is
entitled to sell Shares, 1997 Shares and Warrant Shares.
5. In connection with any request for registra-
tion and the filing of a Registration Statement, Seller shall be
required to furnish Purchaser with all relevant information
concerning the proposed method of sale or other disposition of
the Shares, the 1997 Shares and the Warrant Shares, the identity
and compensation to be paid to any proposed underwriters, if any,
to be employed at the election of Seller in connection therewith,
and such other information as may be reasonably required by
Purchaser to properly prepare and file such Registration
Statement in accordance with applicable provisions of the Act
(which includes the rules and regulations thereunder). Upon the
request of Purchaser, such information shall be furnished by
Seller in writing.
D. Expenses. In connection with or otherwise
--------
relating to registrations on behalf of Seller of any Shares, 1997
Shares or Warrant Shares under the Act pursuant to this Section
5, Purchaser shall pay all Registration Expenses; provided,
however, that Seller shall be required to bear that portion of
the underwriting commissions, fees and discounts, if any,
attributable solely to the inclusion of Shares, 1997 Shares or
Warrant Shares in any Registration Statement relating thereto and
the inclusion of Shares, 1997 Shares or Warrant Shares in the
related filings under state securities or Blue Sky laws; and
further provided that Seller shall pay the legal fees and
disbursements of counsel to Seller in connection therewith.
E. Indemnification.
---------------
1. In connection with or otherwise relating to
the registration of any Shares, 1997 Shares or Warrant Shares
under the Act pursuant to the provisions of this Amendment No. 6,
Purchaser agrees to indemnify and hold harmless and defend
Seller, each underwriter, if any, of such Shares, 1997 Shares or
Warrant Shares, each other person who controls Seller or any such
underwriter within the meaning of the Act, and Seller's officers,
directors and counsel from and against any and all losses,
claims, damages, liabilities, joint or several, to which Seller,
such underwriter, such controlling person or such officers,
directors and counsel of Seller may become subject under the Act
or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration
Statement under which such Shares, 1997 Shares or Warrant Shares
were registered under the Act or any Prospectus contained therein
or related thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse Seller, such
underwriter, such controlling person or such officers, directors
and counsel of Seller for any legal or any other fees or expenses
reasonably incurred by such Seller, underwriter, controlling
person or Seller's officers, directors and counsel in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Purchaser will not
be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or such
Prospectus in reliance upon and in conformity with written
information furnished to Purchaser by the party seeking
indemnification.
2. In connection with or otherwise relating to
the registration of any Shares, 1997 Shares or Warrant Shares
under the Act pursuant to the provisions hereof, Seller agrees to
indemnify and hold harmless Purchaser, each person who controls
Purchaser within the meaning of the Act, and each officer and
director of Purchaser from and against any losses, claims,
damages or liabilities, joint or several, to which the Purchaser,
such controlling person or such officer or director or counsel of
Purchaser may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Shares,
1997 Shares or Warrant Shares were registered under the Act or
any Prospectus contained therein, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or
alleged untrue statement or omission or alleged omission was made
therein in reliance upon and in conformity with written
information furnished to Purchaser by Seller, any person who
controls Seller or any officer, director or counsel of Seller
specifically for use in connection with the preparation thereof;
and will reimburse Purchaser, each such controlling person and
each such officer or director for any legal or any other fees and
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action.
3. Each person entitled to indemnification
hereunder (the "Indemnitee") agrees, as soon as is reasonably
practicable after the receipt of notice of any claim or action
against it, to notify the party from whom indemnity may be sought
hereunder (the "Indemnitor") in writing; provided that any
failure to promptly provide such notice shall not excuse the
Indemnitor from its obligations hereunder except to the extent
the Indemnitor is actually prejudiced thereby. The Indemnitor
shall assume the defense of any such claim or action (and the
cost thereof) by counsel of the Indemnitor's own choosing, who
shall be reasonably satisfactory to the Indemnitee. Each
Indemnitee shall have the right to employ separate counsel in
connection with any such claim or action and to participate in
the handling or defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel has been specifically authorized
by the Indemnitor or the Indemnitor shall not have employed
counsel to have charge of the defense of such action or claim or
such Indemnitee shall have reasonably concluded that there may be
defenses available to the Indemnitee (in which case the Indemni-
tor shall not have the right to direct the defense of such action
on behalf of such Indemnitee), in any of which events such fees
and expenses shall be borne by the Indemnitor. The Indemnitor
shall be free to settle any claims or action in respect to which
indemnity may be sought against it pursuant to this Subsection
5.6(c); provided, however, that the Indemnitor shall not settle
any such claim or action if such settlement would result in the
imposition against Indemnitee of a judgement, decree or order in
the nature of equitable relief or otherwise require an
acknowledgement of wrongdoing unless the Indemnitor has obtained
the prior written consent of such Indemnitee (which consent shall
not be unreasonably withheld).
F. Compliance with Rule 144. The Purchaser shall
------------------------
take such actions pursuant to or otherwise in connection with
Rule 144 as is necessary to enable the Seller to sell Shares,
1997 Shares and Warrant Shares pursuant to that Rule.
G. Assignment. Seller's rights under this Section 5
----------
may be assigned by Seller to a transferee or assignee of any of
the Shares, the 1997 Shares and/or the Warrant Shares; provided
that Purchaser is given written notice of such assignment at the
time of or within a reasonable time after the assignment, stating
the name and address of the transferee or assignee and
identifying the number of Shares, 1997 Shares and/or Warrant
Shares with respect to which such rights of Seller are being
assigned.
VI. Representations and Warranties of Seller. Seller represents
----------------------------------------
and warrants to Purchaser as follows:
1. Organization and Good Standing; Subsidiary. Seller is
------------------------------------------
a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization
and is duly qualified as a foreign corporation in good standing
and is authorized to do business under the laws of the State of
New Jersey.
2. Authority. Seller has full corporate power and
---------
authority to execute and deliver this Amendment No. 6 and the
other agreements, documents and instructions executed and
delivered and/or to be executed and delivered by it in connection
herewith and to consummate the transactions contemplated hereby
and thereby. All corporate acts and other proceedings required
to be taken by or on the part of the Seller to authorize the
execution, delivery and performance by Seller of this Amendment
No. 6 and of such other agreements, documents and instruments and
to consummate the transactions contemplated hereby and thereby
have been duly and properly taken and obtained. This Amendment
No. 6 has been duly executed and delivered by Seller and
constitutes, and such other agreements, documents and instruments
when duly executed and delivered by Seller will constitute,
legal, valid and binding obligations of Seller enforceable
against Seller in accordance with their respective terms. The
execution and delivery by Seller of this Amendment No. 6 and such
other agreements, documents and instruments and the consummation
by Seller of the transactions contemplated hereby and thereby
will not violate any law, or conflict with, result in any breach
of, constitute a default (or an event which with notice or lapse
of time or both would become a default) or cause a Lien under,
the corporate charter or by-laws of Seller or any indenture,
mortgage, lease, agreement or other instrument to which Seller is
a party or by which Seller or its properties or assets is bound,
except for any violations, conflicts, breaches or Liens which
individually or in the aggregate would not have a material
adverse effect on the business currently conducted by Seller. No
approval, authorization, consent or other order of, action of or
filing with any court, administrative agency or other
governmental authority is required for the execution and delivery
by Seller of this Amendment No. 6 or such other agreements,
documents and instruments or the consummation by Seller of the
transactions contemplated hereby or thereby.
3. Security. Seller has no security interest in any asset
--------
of Purchaser or its Subsidiary except for its security interest
in the Collateral, as that term is defined in and pursuant to the
Trademark Security Agreement as amended.
4. Disclosure. No representation or warranty by Seller in
----------
this Amendment No. 6 contains or will contain any untrue state-
ment of material fact or omits or will omit to state any material
fact required to make the statements herein or therein contained
not misleading.
VII. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to Seller as follows:
1. Organization. Purchaser is a corporation duly
------------
organized, validly existing and in good standing under the laws
of the jurisdiction of its organization.
2. Authority. Purchaser has full corporate power and
---------
authority to execute and deliver this Amendment No. 6 and the
other agreements, documents and instruments executed and
delivered and/or to be executed and delivered by it in connection
herewith and to consummate the transactions contemplated hereby
and thereby. All corporate acts and other proceedings required
to be taken to authorize such execution, delivery and
consummation have been duly and properly taken and obtained.
This Amendment No. 6 has been duly executed and delivered by
Purchaser and constitutes, and such other agreements, documents
and instruments when duly executed and delivered by Purchaser
will constitute, legal, valid and binding obligations of
Purchaser enforceable against it in accordance with their
respective terms. The execution and delivery by Purchaser of
this Amendment No. 6 and such other agreements, documents and
instruments and the consummation by Purchaser of the transactions
contemplated hereby and thereby will not violate any law, or
conflict with, result in any breach of, constitute a default (or
an event which with notice or lapse of time or both would become
a default) or cause a Lien under, the corporate charter or by-
laws of Purchaser, or any indenture, mortgage, lease, agreement
or other instrument to which Purchaser is a party or by which
Purchaser or its properties or assets is bound, except for any
violations, conflicts, breaches or Liens which individually or in
the aggregate would not have a material adverse effect on the
business currently conducted by Purchaser or its assets. No
approval, authorization, consent or other order of, action of or
filing with any court, administrative agency or other
governmental authority is required for the execution and delivery
by Purchaser of this Amendment No. 6 and/or the execution and
delivery by Purchaser of such other agreements, documents and
instruments or the consummation by Purchaser of the transactions
contemplated hereby or thereby, except for filings and notices
required by the Commission or pursuant to any securities law
affecting Purchaser in connection with this Amendment No. 6.
3. SEC Documents. Purchaser has furnished Seller with a
-------------
true and complete copy of each report, schedule, registration
statement and a definitive proxy statement filed by Purchaser
with the SEC since January 1, 1995 (the "Recent Purchaser SEC
--------------------
Documents") which are all the documents (other than preliminary
---------
material) that Purchaser was required to file with the SEC since
January 1, 1995. Except as set forth in Purchaser's Form 10-QSB
filed with respect to the period ending on June 30, 1997, as of
their respective dates, and subject to any qualifications
contained herein, none of the Recent Purchaser SEC Documents
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading. Except
to the extent information contained in any Recent Purchaser SEC
Document has been revised or superseded by a later-filed Recent
Purchaser SEC Document, and subject to any qualifications
contained therein, none of the Recent Purchaser SEC Documents
currently contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
Except as set forth in Purchaser's Form 10-QSB filed with respect
to the period ending on June 30, 1997, the financial statements
of Purchaser included in the Recent Purchaser SEC Documents
comply as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, have been
prepared in accordance with US GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as
permitted by the rules applicable to the preparation of reports
on Form 10-QSB promulgated by the SEC) and fairly present
(subject, in the case of unaudited statements, to normal audit
adjustments) the consolidated financial position of Purchaser and
its consolidated Subsidiary as at the respective dates thereof
and the consolidated results of their operations and changes in
cash flow for the respective periods then ended.
4. Absence of Certain Changes or Events. Since June 30,
------------------------------------
1997, there has not been or otherwise occurred any event which
has had or, to the best of Purchaser's knowledge, could have a
material adverse effect on the business, financial condition or
results of operations of Purchaser and its Subsidiary taken as a
whole.
5. Capitalization. As of the date prior to the date
--------------
hereof, (i) the authorized capital stock of Purchaser consists of
26,400,000 shares of Class A Stock and 900,000 shares of Class B
Stock, 2,000,000 shares of Preferred Stock and none other; (ii)
(A) 7,628,320 shares of Class A Stock, (B) 431,552 shares of
Class B Stock and (C) no shares of Preferred Stock are issued and
outstanding; and (iii) 2,600,000 shares of Class A Stock were
reserved for issuance upon exercise of options granted pursuant
to Purchaser's 1990 Stock Option Plan, as amended, 960,000 shares
of Class A Stock are reserved for issuance under the unit
purchase option plan for D.H. Blair & Co. arising out of a
December, 1993 private placement; warrants to acquire 60,000
shares of Class A Stock at $4.50 per share held by Upsher-Smith
Laboratories, Inc. expiring December 15, 1997 and warrants to
acquire 150,000 shares of Class A Stock at $4.50 per share are
held by Tsumura International, Inc. expiring March 30, 1998.
There are no other authorized or issued shares of capital stock
(preferred or otherwise) of any kind or nature whatsoever of
Purchaser. Except as provided in clause (iii) of the next
preceding sentence, there are no options, warrants,
subscriptions, or other rights, agreements or commitments of any
kind or nature whatsoever which may, do or could directly or
indirectly require the issuance, sale or transfer by Purchaser of
any shares of capital stock of Purchaser, including, without
limitation, any securities convertible into or exchangeable or
exercisable for, or otherwise evidencing the right to acquire,
any shares of capital stock of Purchaser. All of the 1997 Shares
have been duly authorized and validly issued, fully paid and non-
assessable and are not subject to, nor were they issued in
violation of, any preemptive rights, and are free and clear of
all Liens excluding liens or encumbrances caused or created by
Seller. Upon the issuance of the Warrant Shares, if ever, all of
such Warrant Shares will be duly authorized and validly issued,
fully paid and non-assessable and will not be subject to, nor
will they be issued in violation of, any preemptive rights, and
will be free and clear of all Liens excluding liens or
encumbrances caused or created by Seller. Purchaser has not
amended, restated or otherwise modified either its certificate of
incorporation or its by-laws from that provided by Purchaser to
Seller in connection with Amendment No. 4. The last amendment,
restatement or modification of its certificate of incorporation
is dated October 21, 1991 and the last amendment, restatement or
modification of its by-laws is dated October 21, 1991.
6. Agreements with Affiliates. There are no agreements or
--------------------------
other arrangements between or among Purchaser or any Subsidiary,
on the one hand, and any Affiliated Person, on the other hand,
except as described in the Recent Purchaser SEC Documents.
7. Disclosure. No representation or warranty by Purchaser
----------
or Doak in this Amendment No. 6 or any other agreement, document
or instrument executed and delivered or to be executed and
delivered by Purchaser or Doak pursuant hereto or in connection
herewith, contains or will contain any untrue statement of
material fact, or omits or will omit to state any material fact
required to make the statements herein or therein contained not
misleading.
VIII. Amendment of Section 6.14(e). Section 6.14(e) of the
----------------------------
Agreement is hereby amended to add the words "and/or Amendment
No. 6" after the words "Amendment No. 5" in the two places in
which the words "Amendment No. 5" appear.
IX. New Sections 6.16. New Sections 6.16, 6.17, 6.18 and 6.19
-----------------
are hereby added to the Agreement to read in their entireties as
follows:
"SECTION 6.16. Warrant. 1. In consideration of Seller
-------
executing and delivering this Amendment No. 6 and for other
good and valuable consideration, promptly after Purchaser is
permitted to do so under applicable law, Purchaser shall
issue to Seller, for no additional consideration, the
Warrant to purchase seven hundred fifty thousand (750,000)
shares of Class A Stock at an exercise price of $1.25 per
share, exercisable (in full at any time or in part from time
to time) (i) during the period commencing on May 1, 1999 and
ending on April 30, 2001, in the event that the Warrant is
issued to Seller on or before December 31, 1998, or (ii)
during the period commencing on the six (6) month
anniversary of the date that the Warrant is issued to Seller
and ending on the thirty (30) month anniversary of the date
that the Warrant is issued to Seller, in the event that the
warrant is issued to Seller after December 31, 1998;
provided that the applicable period during which the Warrant
may be exercised pursuant to clause (i) or (ii) above, shall
be extended for up to three consecutive twelve (12) month
periods (the "Extended Exercise Period") if the exercise by
Seller of the Warrant in full would cause Seller to own in
excess of 19.98% of the issued and outstanding Class A Stock
as of the last day of the applicable period during which the
Warrant may be exercised pursuant to clause (i) or (ii)
above or the prior Extended Exercise Period, as applicable.
2. Purchaser shall reserve and keep available out of
its authorized but unissued Class A Stock the number of
shares of such stock required for issuance upon the exercise
of the Warrant (including any additional shares of such
stock which may become so issuable by reason of the
operation of anti-dilution provisions of the Warrant).
SECTION 6.17. Reincorporation. In consideration of
---------------
Seller executing and delivering this Amendment No. 6 and for
other good and valuable consideration, Purchaser agrees to submit
to its stockholders for approval at Purchaser's 1998 Annual
Meeting of stockholders, and shall use its best efforts to cause
its stockholders to approve, a proposal to reincorporate
Purchaser in Delaware. Seller agrees to vote its shares of Class
A Stock in favor of such proposal.
SECTION 6.18. Voting. (a) Subject to Subsection
------
6.18(b) below, Seller shall vote all shares of Class A Stock
owned by it on a pro rata basis in accordance with the
--- ----
manner that (i) all other shares of Class A Stock are voted,
with respect to all matters which are voted upon by holders
of Class A Stock as a class (for example, if 70% of all
shares of Class A Stock entitled to vote with respect to a
matter are voted in favor of such matter and 30% are voted
against it, 70% of the shares of Class A Stock owned by
Seller shall be voted in favor of such matter and 30% shall
be voted against it), or (ii) all other shares of Class A
Stock and Class B Stock are voted, with respect to all
matters which are voted upon by all holders of Class A Stock
and Class B Stock (for example, if 70% of all shares of
Class A Stock and Class B Stock entitled to vote with
respect to a matter are voted in favor of such matter and
30% are voted against it, 70% of the shares of Class A Stock
owned by Seller shall be voted in favor of such matter and
30% shall be voted against it).
(b) Notwithstanding the provisions of Subsection
6.18(a) above to the contrary, Seller shall have the right
to vote all such shares of Class A Stock as it may determine
in its sole discretion on all of the following matters:
a. any matter in connection with which Seller
has dissenter or appraisal rights and Seller has
exercised such dissenter or appraisal rights;
b. any matter voted upon after a bankruptcy
proceeding is pending with respect to Purchaser
(whether initiated voluntarily or involuntarily) under
the U.S. Bankruptcy Code, as amended;
c. any matter which, if approved, would
discriminate against any holder of five percent (5%) or
more of the outstanding capital stock of Purchaser
(including Seller); or
d. the stockholder vote referred to in 6.17 with
respect to which Seller has agreed to vote its shares
in the manner set forth in Section 6.17.
SECTION 6.19. Redemption. In the event that Purchaser
----------
redeems any of its common capital stock from any holder(s)
thereof (other than Seller), other than a pro rata
--- ----
redemption from all holders of such stock, or any such stock
is forfeited by any such holder(s), Purchaser shall notify
Seller, in writing (the "Redemption Notice"), not less that
twenty (20) days prior to any such action. Seller shall
have the right to require Purchaser to redeem from Seller a
pro rata number of Seller's shares of Class A Stock, by
--- ----
notifying Purchaser, in writing (the "Exercise Notice"),
within ten (10) Business Days of Seller's receipt of the
Redemption Notice from Purchaser. Seller's stock shall be
redeemed at a price per share which is equal to the average
of the bid and asked price published in the Wall Street
Journal on the Business Day before the Exercise Notice is
sent by Seller to Purchaser (or if there is no bid and asked
price on such last Business Day, on the most recent day on
which a bid and asked price had been published in the Wall
Street Journal).
SECTION 6.20. Restriction on Issuance of Additional
-------------------------------------
Class B Stock. Purchaser agrees that until such time as (a)
-------------
a Registration Statement relating to the Shares and the 1997
Shares has been declared effective by the Commission, and
(b) the Warrant has been issued, in each case in accordance
with the terms hereof, Purchaser shall not issue any Class B
Stock unless after such issuance the percentage of all
issued and outstanding shares of Class B Stock directly
owned by Daniel Glassman is no lower than the percentage of
all issued and outstanding shares of Class B Stock directly
owned by Daniel Glassman on the date hereof."
X. Amendment of Section 11.01. Clause (vii) of Section 11.01
--------------------------
of the Agreement is hereby amended and restated in its entirety
as follows:
"(vii) A registration statement respecting the
Shares and the 1997 Shares either (A) has not been
filed by the date set forth in Section 5.2 or (B) shall
cease to be effective for an aggregate of sixty (60)
days unless the reason for any such event is the fault
of Seller or circumstances outside the control of
Purchaser."
XI. Condition Precedent to Effective Date. This Amendment No. 6
-------------------------------------
shall not become effective until the date the following have
occurred:
1. Purchaser shall have paid the Effective Date
Payment in accordance with Section 2.03(g)(i); and
2. The parties shall have executed and delivered the
other documents and agreements listed on Schedule A,
contemplated by this Amendment No. 6, all in form and
substance reasonably satisfactory to Seller.
XII. Release. Purchaser, on behalf of itself and its
-------
Subsidiary, hereby completely and forever waives, releases and
discharges any claims, demands, liabilities, agreements or other
obligations of any kind and nature whatsoever that either
Purchaser or its Subsidiary or both has had, now has or hereafter
may, could or shall have against Seller and/or its officers,
directors and controlling persons with respect to any of the
matters relating to or otherwise in connection with the Agreement
(including, without limitation, the sale of the business by
Seller to Purchaser on or about December 10, 1993), except, and
only except, the obligations of Seller (a) pursuant to Sections
4, 5 and 6 of this Amendment No. 6; and (b) to indemnify
Purchaser in respect of claims which are in the nature of product
liability claims asserted by individuals for personal injury, and
then only to such extent (and none others) pursuant to Section
9.05(b) of the Agreement.
XIII. Confidentiality. Except in connection with an Event of
---------------
Default, Seller agrees to treat as confidential and not to
disclose or use for purposes of investment or trading for its own
account or the account of others, any information of a
confidential or proprietary nature ("Confidential Information")
------------------------
concerning Purchaser or its Subsidiary (i) unless such
information is or becomes a matter of public record through no
fault of Seller or Seller can demonstrate such information was
known by Seller prior to such disclosure, (ii) except for any
information given to Seller by any third party unless Seller knew
or had a reasonable reason to believe that such third party did
not have a right to give such information to Seller and (iii)
except as Seller reasonably believes may be required by any
applicable law. In no event shall Seller use any Confidential
Information in violation of federal or state securities laws.
XIV. Miscellaneous.
-------------
1. Survival. The representations, warranties, covenants
--------
and agreements contained in this Amendment No. 6, and in any
agreements, documents or instruments delivered pursuant to this
Amendment No. 6, shall survive the closing of the transactions
contemplated by this Amendment No. 6 and shall remain in full
force and effect.
2. Expenses. Purchaser and Seller confirm that, in con
--------
nection with and in satisfaction of Purchaser's obligation to
reimburse Seller for Seller's attorneys and other fees incurred
in connection with or otherwise relating to this Amendment No. 6
(including in connection with the other agreements, instruments
and documents delivered pursuant to or in connection with this
Amendment No. 6), Seller has agreed to accept and Purchaser has
agreed to pay Seller (a) $15,000, in the event that the closing
of the transactions contemplated hereby occurs on or prior to
September 19, 1997, or (b) $25,000, in the event that the closing
of the transactions contemplated hereby occurs after September
19, 1997, and Purchaser has made such payment on the date hereof.
3. Further Assurances. From and after the date hereof,
------------------
upon request and at the cost and expense of Seller (except as
otherwise provided in this Amendment No. 6), Purchaser shall
take, execute, acknowledge and deliver all such further acts,
assurances, deeds, assignments, transfers, conveyances and other
instruments and papers as may be required to carry out the
transactions contemplated in this Amendment No. 6 and/or the
other agreements, documents or instruments delivered pursuant to
or in connection with this Amendment No. 6. From and after the
date hereof, upon request and at the cost and expense of
Purchaser (except as otherwise provided in this Amendment No. 6),
Seller shall take, execute, acknowledge and deliver all such
further acts, assurances, deeds, assignments, transfers,
conveyances and other instruments and papers (including, without
limitation, UCC-3 Termination Statements terminating any UCC-1
Financing Statements filed by Seller, as secured party, in
connection with the Original Asset Purchase Agreement) as may be
required to carry out the transactions contemplated in this
Amendment No. 6 and/or the other agreements, documents or
instruments delivered pursuant to or in connection with this
Amendment No. 6.
4. Governing Law. This Amendment No. 6 shall be governed
-------------
by and construed and interpreted in accordance with the laws of
the State of New York, without giving effect to principles of
conflicts of law.
5. Publicity. Each party shall be solely responsible for
---------
any press release or any other public announcement it issues with
respect to this Amendment No. 6 or the transactions contemplated
hereby; provided that, without limiting the generality of the
preceding clause, Purchaser shall provide Seller with at least
two (2) Business Days opportunity to comment on the press release
Seller intends to issue upon the execution of this Amendment No.
6. Except where required by law, each party shall provide the
other with reasonable advance notice of any such press release or
public announcement relating to this Amendment No. 6 and the
transactions contemplated hereby and by the Original Asset
Purchase Agreement.
6. Severability. If any provision of the Agreement
------------
(including this Amendment No. 6) or the application thereof to
any Person(s) or circumstance(s) shall be invalid or
unenforceable to any extent, (i) the remainder of the Agreement
and the application of such provision to other Person(s) or
circumstance(s) shall not be affected thereby and (ii) each such
provision shall be enforced to the greatest extent permitted by
law.
7. Counterparts. This Amendment No. 6 may be executed in
------------
two or more counterparts (and via fax), each of which shall
constitute an original, but all of which, when taken together,
shall constitute but one instrument.
8. Limited Amendment. The provisions of the Original
-----------------
Asset Purchase Agreement, as amended by this Amendment No. 6,
shall remain in full force and effect, and except as expressly
provided herein, shall remain unamended. Except as expressly
provided herein, the provisions of all of the other agreements,
documents and instruments executed and delivered in connection
with the Original Asset Purchase Agreement shall remain in full
force and effect and shall remain unamended.
In the event of a conflict between the terms of this Amendment
No. 6, and the terms of the Original Asset Purchase Agreement,
the terms of this Amendment No. 6 shall be controlling.
9. References to the Agreement. From and after the date
---------------------------
hereof, all references to the Original Asset Purchase Agreement
in the other agreements, documents and instruments executed and
delivered in connection with the Original Asset Purchase
Agreement shall mean the Agreement.
10. Third Party Beneficiaries. Notwithstanding Section
-------------------------
12.16 of the Agreement, the individuals and/or entities other
than Seller and Purchaser which are referred to in Section 5 of
this Amendment No. 6 are intended third party beneficiaries of
such Section 5 and shall have the right to fully enforce such
provisions as fully as if they were a party hereto.
11. Specific Performance. The parties agree that
--------------------
irreparable damage would occur in the event that any of the
provisions of this Amendment No. 6 were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent any breach of this Amendment
No. 6 and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 6 to be duly executed as of the day and year first
above written.
BRADLEY PHARMACEUTICALS, INC.
By:
Name: DANIEL GLASSMAN
Title: Chief Executive
Officer
BERLEX LABORATORIES, INC.
By:
Name: WOLFGANG KUNZE
Title: Vice President
<PAGE>
SCHEDULE A
Seller shall have received fully executed copies of the
following, in form and substance reasonably satisfactory to
Seller:
1. Letter Agreement with Daniel Glassman
2. Officer's Certificate (together with Board resolutions) from
Purchaser
EXHIBIT A
---------
THIS SECURITY WAS SOLD IN A PRIVATE PLACEMENT, WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AND MAY BE OFFERED
OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR IF
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Right to Purchase 750,000 Shares of
Class A Common Stock of Bradley Pharmaceuticals, Inc.
BRADLEY PHARMACEUTICALS, INC.
Class A Common Stock Purchase Warrant
BRADLEY PHARMACEUTICALS, INC., a New Jersey corporation (the
"Company"), hereby certifies that, for value received, BERLEX
LABORATORIES, INC., or its assigns, is entitled, subject to the
terms set forth below, to purchase from the Company at any time
or times during the period commencing on (a) May 1, 1999 (in the
event that this Warrant is issued to Seller on or before December
31, 1998) or (b) the six (6) month anniversary of the date that
this Warrant is issued to Seller (in the event that this Warrant
is issued to Seller after December 31, 1998) (the "Vesting Date")
and ending on the two (2) year anniversary of such Vesting Date
at 5:00 P.M. eastern standard time (the "Initial Exercise
Period"), 750,000 fully paid and nonassessable shares of Class A
Common Stock (as defined below) at an exercise price per share of
$1.25 (such exercise price per share as adjusted from time to
time as herein provided is referred to herein as the "Exercise
Price"); provided that the Initial Exercise Period shall be
extended for up to three consecutive twelve (12) month periods
(each an "Extended Exercise Period") if the exercise of this
Warrant in full by the holder hereof would cause the holder
hereof to own in excess of 19.98% of the issued and outstanding
Class A Common Stock as of the last day of the Initial Exercise
Period or any Extended Exercise Period, as applicable. Any
reference herein to the holder of this Warrant shall mean the
holder of holders from time to time of this Warrant.
As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
1. The term "Company" means Bradley
Pharmaceuticals, Inc. and any corporation which shall
succeed or assume the obligations of the Company hereunder.
2. The term "Class A Common Stock" means (i) the
Company's Class A Common Stock, no par value, (ii) any other
securities into which or for which any of the Company's
Class A Common Stock, no par value, may be converted or
exchanged, pursuant to a plan of recapitalization,
reorganization, consolidation, merger, sale of assets or
other similar corporate rearrangement or (iii) any other
capital stock of any class of the Company (other than the
Company's Class B Common Stock, no par value) hereafter
authorized which is not limited to a fixed sum or percentage
or par or stated value in respect to the rights of the
holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or
winding up of the Company; provided that if there is a
change such that the securities issuable upon exercise of
this Warrant are issued by an entity other than the Company
or there is a change in the class of securities so issuable,
then the term "Class A Common Stock" shall mean one share of
the security issuable upon exercise of this Warrant if such
security is issuable in shares or shall mean the smallest
unit in which such security is issuable if such security is
not issuable in shares.
3. The term "Company Securities" any voting
security of the Company (other than Class A Common Stock),
or any other securities of the Company (including, without
limitation, any preferred or debt securities, options,
warrants or other similar rights) convertible into or
exercisable or exchangeable for shares of Class A Common
Stock or any other voting security of the Company which the
holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Class A Common Stock,
or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Class A Common
Stock or Company Securities pursuant to Section 5 or
otherwise.
4. The term "Fair Market Value" means (i) if the
Class A Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the NASDAQ system, the
arithmetic average of the reported last sale prices of the
Class A Common Stock on such exchange or system for the
twenty (20) consecutive trading days immediately preceding
the date for which the determination is being made; (ii) if
the Class A Common Stock is not so listed or admitted to
unlisted trading privileges, the arithmetic average of the
means of the last reported bid and asked prices reports by
the National Quotation Bureau, Inc. for the twenty (20)
consecutive trading days immediately preceding the date for
which the determination is being made; or (iii) if the Class
A Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so
reported, an amount, not less than book value thereof, as at
the end of the most recent fiscal year of the Company ending
prior to the date for which the determination is being made,
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
5. The term "Person" means any individual,
partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other
entity, of whatever nature.
1. Exercise of Warrant.
-------------------
1.1 Full Exercise. This Warrant may be exercised in full
-------------
by the holder hereof by surrender of this Warrant, with the form
of subscription at the end hereof duly executed by such holder,
to the Company at its principal office or the office of its stock
transfer agent, accompanied by payment in immediately available
funds or by certified or official bank check payable to the order
of the Company, in the amount obtained by multiplying the number
of shares of Class A Common Stock for which this Warrant is then
exercisable by the Exercise Price then in effect.
1.2 Partial Exercise. This Warrant may be exercised in
----------------
part by surrender of this Warrant in the manner and at the place
provided in Section 1.1 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by
multiplying (a) the number of shares of Class A Common Stock
designated by the holder hereof in the subscription at the end
hereof by (b) the Exercise Price then in effect. Each partial
exercise of this Warrant shall be for at least 100,000 shares of
Class A Common Stock (or such lesser number of shares of Class A
Common Stock for which this Warrant may still be exercised). On
any such partial exercise the Company at its expense will
forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of
the holder hereof or as such holder may request, calling in the
aggregate on the face or faces thereof for the number of shares
of Class A Common Stock for which such Warrant or Warrants may
still be exercised.
1.3 Company Acknowledgment. The Company will, at the time
----------------------
of the exercise of this Warrant, upon the request of the holder
hereof, acknowledge in writing its continuing obligation to
afford to such holder any rights to which such holder shall
continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make
any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder any such
rights.
1.4 Trustee for Warrant Holder. In the event that a bank
--------------------------
or trust company shall have been appointed as trustee for the
holder of this Warrant pursuant to Section 4.2, such bank or
trust company shall accept, in its own name for the account of
the Company or such successor Person as may be entitled thereto,
all amounts otherwise payable to the Company or such successor,
as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Delivery of Stock Certificates on Exercise. As soon as
------------------------------------------
practicable after the exercise of this Warrant in full or in
part, and in any event within ten (10) days thereafter, the
Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of
and delivered to the holder hereof, or as such holder (upon
payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully
paid and nonassessable shares of Class A Common Stock (or Company
Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash equal to such fraction
multiplied by the then current Fair Market Value of one full
share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or
otherwise.
3. Adjustment for Dividends in Other Stock, Property. In case
-------------------------------------------------
at any time or from time to time, the holders of Class A Common
Stock (or Company Securities) shall have received, or (on or
after the record date fixed for the determination of shareholders
eligible to receive) shall have become entitled to receive,
without payment therefor, (a) other or additional stock or other
securities or property (other than cash) by way of dividend, or
(b) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement, or (c) other or additional stock or other
securities or property (including cash) by way of spin-off,
split-up, recapitalization, combination of shares or similar
corporate rearrangement, (other than additional shares of Class A
Common Stock (or Company Securities) issued as a stock dividend
or in a stock-split (adjustments in respect of which are provided
for in Section 5)), then and in each such case the holder of this
Warrant, on the exercise hereof as provided in Section 1, shall
be entitled to receive the amount of stock and other securities
and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise if on the date
immediately prior to such event it had been the holder of record
of the number of shares of Class A Common Stock to which it would
be entitled on such date under the terms of this Warrant and had
thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property
(including cash in the cases referred to in subdivisions (b) and
(c) of this Section 3) receivable by it as aforesaid during such
period, giving effect to all adjustments called for during such
period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation or Merger.
------------------------------------------------------
4.1 General. In case at any time or from time to time, the
-------
Company shall (a) effect a recapitalization, reclassification or
reorganization or other change of outstanding shares of Class A
Common Stock of the Company, (b) consolidate with or merge with
or into any other Person, or (c) at any time prior to the Initial
Exercise Period, transfer or otherwise convey all or
substantially all of its properties or assets to any other Person
or under any plan or arrangement contemplating the dissolution of
the Company, then, in each such case, except as otherwise
provided in Section 4.3 hereof, the holder of this Warrant, on
the exercise hereof as provided in Section 1 at any time prior to
the termination of this Warrant shall receive, in lieu of the
Class A Common Stock (or Company Securities) issuable on such
exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which
such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto,
all subject to further adjustment thereafter as provided in
Sections 3 and 5.
4.2 Dissolution. Except as otherwise provided in Section
-----------
4.3 hereof, in the event of any dissolution of the Company
following the transfer of all or substantially all of its
properties or assets at any time prior to the Initial Exercise
Period, the Company, prior to such dissolution, shall at its
expense deliver or cause to be delivered the stock and other
securities and property (including cash, where applicable)
receivable by the holder of this Warrant after the effective date
of such dissolution pursuant to this Section 4 to a bank or trust
company, as trustee for the holder of this Warrant.
4.3 Continuation of Terms. Except as otherwise hereinafter
---------------------
provided, upon any recapitalization, reclassification,
reorganization, consolidation, merger or transfer (and any
dissolution following any transfer or other conveyance) referred
to in this Section 4, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the shares
of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such
recapitalization, reclassification, reorganization, consolidation
or merger or the effective date of dissolution following any such
transfer or other conveyance, as the case may be, and shall be
binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer or other conveyance,
the Person acquiring all or substantially all of the properties
or assets of the Company, whether or not such Person shall have
expressly assumed the terms of this Warrant as provided herein.
5. Adjustment for Extraordinary Events. In the event that the
-----------------------------------
Company shall (a) issue additional shares of Class A Common Stock
as a dividend or other distribution on outstanding Class A Common
Stock, (b) subdivide its outstanding shares of Class A Common
Stock, or (c) combine its outstanding shares of Class A Common
Stock into a smaller number of shares of Class A Common Stock
(each an "Extraordinary Event"), then, in each such Extraordinary
Event, the Exercise Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then
Exercise Price by a fraction, the numerator of which shall be the
number of shares of Class A Common Stock outstanding immediately
prior to such event and the denominator of which shall be the
number of shares of Class A Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be
the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Event(s). The holder
of this Warrant shall thereafter, on the exercise hereof as
provided in Section 1, be entitled to receive that number of
shares of Class A Common Stock determined by multiplying the
number of shares of Class A Common Stock which would otherwise
(but for the provisions of this Section 5) be issuable on such
exercise by a fraction of which (i) the numerator is the Exercise
Price which would otherwise (but for the provisions of this
Section 5) be in effect, and (ii) the denominator is the Exercise
Price in effect on the date of such exercise.
6. No Dilution or Impairment; etc. The Company shall not, by
------------------------------
amendment of its charter, by-laws or other governing instrument
or through any recapitalization, reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against dilution or other
impairment prohibited by this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall not increase
the par value of any shares of stock receivable on the exercise
of this Warrant above the amount payable therefor on such
exercise, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the
exercise of all Warrants from time to time outstanding, (c) not
close its books against the transfer of this Warrant or of any
share of Class A Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the
timely exercise of this Warrant, and (d) shall assist and
cooperate with the holder hereof or any permitted assignee
thereof required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any
exercise of this Warrant. Notwithstanding any other provision
hereof, if an exercise of any portion of this Warrant is to be
made in connection with a public offering or sale of the Company,
the exercise of any portion of this Warrant may, at the election
of the holder hereof, be conditioned upon the consummation of the
public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the
consummation of such transaction.
7. Certificate as to Adjustments. In each case of any
-----------------------------
adjustment or readjustment in the shares of Class A Common Stock
(or Company Securities) issuable on the exercise of this Warrant,
the Company, at its expense, will promptly cause its Treasurer or
Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including, among other
things, (a) the consideration received or receivable by the
Company for any additional shares of Class A Common Stock (or
Company Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Class A Common Stock (or
Company Securities) outstanding or deemed to be outstanding, and
(c) the Exercise Price and the number of shares of Class A Common
Stock to be received upon exercise of this Warrant, in effect
immediately prior to such issue or sale and as adjusted and
readjusted as provided in this Warrant. The Company will
forthwith mail a copy of each such certificate to the holder of
this Warrant, and will, on the written request at any time of
such holder, furnish to such holder a like certificate setting
forth the Exercise Price at the time in effect and showing how it
was calculated.
8. Notices of Record Date, etc. In the event of:
----------------------------
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive
any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or
to receive any other right, or
(b) any recapitalization or reorganization of the
Company, any recapitalization or reorganization of the
capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or
consolidation or merger of the Company with or into any
other Person, or any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then and in each such event the Company will mail or cause to be
mailed to the holder of this Warrant a notice specifying (i) the
date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, (ii) the date
on which any such recapitalization, reorganization, transfer,
conveyance, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the date the time, if any, is to
be fixed, as of which the holders of record of Class A Common
Stock (or Company Securities) shall be entitled to exchange their
shares of Class A Common Stock (or Company Securities) for
securities or other property deliverable on such
recapitalization, reorganization, transfer, conveyance,
consolidation, merger, dissolution, liquidation or winding up,
and (iii) the amount and character of any stock or other
securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant
and the Persons or class of Persons to whom such proposed issue
or grant is to be offered or made. Such notice shall be mailed
at least twenty (20) days prior to the date specified in such
notice on which any such action is to be taken.
9. Reservation of Stock Issuable on Exercise of Warrant. The
----------------------------------------------------
Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares
of Class A Common Stock (or Company Securities) from time to time
issuable on the exercise of this Warrant.
10. Exchange of Warrant. On surrender for exchange of this
-------------------
Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or on the order of the holder
thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Class A
Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered.
11. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
12. Remedies. The Company stipulates that the remedies at law
--------
of the holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
13. Notices. All notices and other communications from the
-------
Company to the holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such
address as may have been furnished to the Company in writing by
such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
14. Governing Law. This Warrant shall be governed by, and
-------------
construed in accordance with, the laws of the State of New Jersey
without regard to the principles of conflicts of law.
15. Binding Effect. This Warrant shall be binding upon the
--------------
Company and its successors and assigns, and shall inure to the
benefit of the holder or holders hereof and their respective
successors and assigns.
16. Registration of Warrant Shares. The rights of the holder
------------------------------
hereof with respect to the registration of the Class A Common
Stock subject hereto under the Securities Act of 1933, as
amended, are set forth in Section 5 of Amendment No. 6 to Asset
Purchase Agreement dated as of September 19, 1997, between the
Company and Berlex Laboratories, Inc., and such Section 5 is
hereby incorporated by reference as if set forth herein in full.
17. Miscellaneous. Except as provided in Section 4.3 hereof,
-------------
this Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed
by the party against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant
are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
18. Expiration. The right to exercise this Warrant shall expire
----------
on 5:00 P.M., eastern standard Time, on the last day of (a) the
Initial Exercise Period, if no Extended Exercise Period is
applicable, or (b) the latest applicable Extended Exercise
Period, if one or more Extended Exercise Periods are applicable.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed and delivered as of .
-----------------
ATTEST: BRADLEY PHARMACEUTICALS, INC.
By:
------------------- ---------------------------
Name: Name:
Title: Secretary Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: BRADLEY PHARMACEUTICALS, INC.
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase
thereunder shares of Class A Common Stock of Bradley
-------
Pharmaceuticals, Inc. and herewith makes payment of $
----------
therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to
, whose address is
---------------------------------
.
-------------------------------------------------------------
Dated:
----------------------------------
(Signature must conform to name of
holder as specified on the face of
this Warrant)
----------------------------------
(Address)
------------------------------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns,
and transfers unto with an address at
--------------------
the right represented by
-------------------------------------
the within Warrant to purchase shares of Class A
---------------
Common Stock of Bradley Pharmaceuticals, Inc. to which the within
Warrant relates, and appoints attorney to
----------------
transfer such right on the books of Bradley Pharmaceuticals, Inc.
with full power of substitution in the premises.
Dated:
----------------------------------
(Signature must conform to name of
holder as specified on the face of
this Warrant)
----------------------------------
(Address)
Signed in the presence of:
-------------------------
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit
accommodations to be made by Lender to Borrower.
SECTION 1. PARTIES
-------
1.1 The "BORROWER" is the person, firm, corporation or
other entity, identified as the Borrower in Section 10.6(c) and
its successors and assigns. If more than one Borrower is
specified in Section 10.6(c), all references to Borrower shall
mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each. When
Borrower is used in this Agreement to refer to all of the
borrowers collectively, it is sometimes referred to as
"BORROWERS" for purposes of context and clarity.
1.2 The "LENDER" is THE CIT GROUP/CREDIT FINANCE, INC. and
its successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
-------------------------------------
2.1 Revolving Loans.
---------------
Lender shall, subject to the terms and conditions contained
herein, make revolving loans to each Borrower ("REVOLVING LOANS")
in amounts requested by such Borrower from time to time, but not
in excess of such Borrower's Net Availability existing
immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding
Obligations (as defined in Section 4.2 hereof) of all Borrowers
to exceed the Maximum Credit.
(a) The "MAXIMUM CREDIT" is set forth in Section 10.1(a)
hereof.
(b) The "GROSS AVAILABILITY" shall be calculated at any
time as to each Borrower as (i) the product obtained by
multiplying the outstanding amount of Eligible Accounts, net of
all taxes, discounts, allowances and credits given or claimed
with respect to such Borrower, by the Eligible Accounts
Percentage set forth in Section 10.1(b),
plus:
----
(ii) the product(s) obtained by multiplying the applicable
Eligible Inventory Percentage(s), if any, set forth in Section
10.1(b) by the values (as determined by Lender based on the lower
of cost or market) of Eligible Inventory of such Borrower, but
the aggregate amount for all Borrowers when added together shall
not exceed any sublimits set forth in Section 10.1(c),
(c) The "NET AVAILABILITY" shall be calculated at any time
as to each Borrower as an amount equal to the Gross Availability
of such Borrower minus the aggregate amount of all then-
outstanding Obligations of such Borrower to Lender other than the
then-outstanding principal balance of the Term Loans attributable
to such Borrower, if any. The principal amount of Revolving
Loans which Lender makes to a single Borrower at any given time
shall not, except at the sole discretion of Lender, exceed the
Net Availability of such Borrower.
(d) "ELIGIBLE ACCOUNTS" are accounts created by a Borrower
in the ordinary course of its business which are and remain
acceptable to Lender for lending purposes. General criteria for
Eligible Accounts are set forth below but may be revised from
time to time by Lender, in its sole judgment, on fifteen (15)
days' prior written notice to Borrower. Lender shall, in general,
deem accounts to be Eligible Accounts if: (1) such accounts arise
from bona fide completed transactions and have not remained
unpaid for more than the number of days after the invoice date
set forth in Section 10.1(d); (2) the amounts of the accounts
reported to Lender are absolutely owing to Borrower and do not
arise from sales on consignment, guaranteed sale or other terms
under which payment by the account debtors may be conditional or
contingent (other than the chargebacks and rebates (the
"Chargebacks") given or allowed by Borrower to its customers in
connection with its sales of Deconamine, Carmol and other
pharmaceutical products); (3) the account debtor's chief
executive office or principal place of business is located in the
United States, or if the account debtor's chief executive office
or principal place of business is located outside the United
States, such accounts are insured by credit insurance or secured
by a letter of credit issued or confirmed by a domestic bank, in
each case acceptable to Lender; (4) such accounts do not arise
from progress billings retainages or bill and hold sales; (5)
there are no contra relationships, setoffs, counterclaims or
disputes existing with respect thereto and there are no other
facts existing or threatened which would impair or delay the
collectibility of all or any portion thereof other than the
Chargebacks; (6) the goods giving rise thereto were not at the
time of the sale subject to any liens except those permitted in
this Agreement; (7) such accounts are not accounts with respect
to which the account debtor or any officer or employee thereof is
an officer, employee or agent of or is affiliated with Borrower,
directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise; (8) such accounts
are not accounts with respect to which the account debtor is the
United States or any State or political subdivision thereof or
any department, agency or instrumentality of the United States,
any State or political subdivision, unless there has been
compliance with the Assignment of Claims Act or any similar State
or local law, if applicable; (9) Borrower has delivered to Lender
or Lender's representative such documents as Lender may have
requested pursuant to Section 5.8 hereof in connection with such
accounts and Lender shall have received a verification of such
account, satisfactory to it, if sent to the account debtor or any
other obligor or any bailee pursuant to Section 5.4 hereof; (10)
there are no facts existing or threatened which might result in
any material adverse change in the account debtor's financial
condition; (11) such accounts owed by a single account debtor or
its affiliates do not represent more than twenty (20%) percent of
all otherwise Eligible Accounts (accounts excluded from Eligible
Accounts solely by reason of this subsection (11) shall
nevertheless be considered Eligible Accounts to the extent of the
amount of such accounts which does not exceed twenty (20%)
percent of all otherwise Eligible Accounts); (12) such accounts
are not owed by an account debtor who is or whose affiliates are
past due upon other accounts owed to Borrower comprising more
than twenty-five (25%) percent of the accounts of such account
debtor or its affiliates owed to Borrower; (13) such accounts are
owed by account debtors whose total indebtedness to Borrower does
not exceed the amount of any customer credit limits as
established, and changed, from time to time by Lender on notice
to Borrower (accounts excluded from Eligible Accounts solely by
reason of this subsection (13) shall nevertheless be considered
Eligible Accounts to the extent the amount of such accounts does
not exceed such customer credit limit); and (14) such accounts
are owed by account debtors deemed creditworthy at all times by
Lender.
(e) "ELIGIBLE INVENTORY" is inventory owned by a Borrower
which is and remains acceptable to Lender for lending purposes
and is located at one of the addresses set forth in Section
10.6(e). Eligible Inventory shall not include (i) inventory
consisting of work-in-process, samples, sales literature,
promotion items, and slow moving or obsolete inventory, (ii)
inventory not manufactured in compliance with all applicable Good
Manufacturing Standards ("CGMP Standards"), (iii) inventory in
the possession of a bailee, consignee or processor or located at
a location leased by Borrower, unless such bailee, consignee,
processor or landlord, as applicable, delivers to Lender an
agreement in form and substance satisfactory to Lender, together
with such Uniform Commercial Code financing statements as Lender
shall require, and (iv) inventory located at a location owned by
Borrower which is subject to a mortgage in favor of any person
other than Lender, unless such person delivers to Lender an
agreement in form and substance satisfactory to Lender.
(f) Lender shall have a continuing right to deduct reserves
in determining the Gross Availability ("RESERVES"), and to
increase and decrease such Reserves from time to time, if and to
the extent that, in Lender's sole judgement, such Reserves are
necessary to protect Lender against any state of facts which
does, or would, with notice or passage of time or both,
constitute an Event of Default or have an adverse effect on any
Collateral, including but not limited to the right to adjust the
Reserves and/or the Eligible Accounts Percentage to levels
acceptable to Lender if Lender determines in its sole discretion
that such adjustments are necessary due to, among other things, a
change in either (i) the customers of Borrower that are buying
pharmaceuticals subject to Chargebacks, or (ii) the potential
dilution of all of Borrowers' accounts due to Chargebacks. Lender
may, at its option, implement Reserves by designating as
ineligible a sufficient amount of accounts or inventory which
would otherwise be Eligible Accounts or Eligible Inventory so as
to reduce Gross Availability by the amount of the intended
Reserve.
(g) Subject to the terms and conditions hereof,
including but not limited to the existence of sufficient Gross
and Net Availability, Borrowers agree to borrow sufficient
amounts from time to time so that the average annual outstanding
principal balance of the Revolving Loans and the Term Loan, if
any ("AVERAGE ANNUAL LOAN BALANCE"), shall equal or exceed the
principal amounts set forth below and in Section 10.1(e) as the
Minimum Borrowing. Borrower will maintain Gross Availability or
Net Availability in amounts sufficient to permit Borrower to
comply with the Minimum Borrowing requirement. In the event
Borrower does not borrow sufficient amounts to meet or exceed the
Minimum Borrowing requirement, or in the event Borrower fails to
maintain Gross and Net Availability at all times at amounts
sufficient to permit Borrower to comply with the Minimum
Borrowing requirement, then, in either of such event(s):
(i) During the first Loan Year of this Agreement,
if the Average Annual Loan Balance is below $750,000,
Borrower shall pay and Lender shall receive
compensation equal to the amount by which $750,000
exceeds the Average Annual Loan Balance, multiplied by
the applicable Interest Rate specified in Section
10.4(a) of this Agreement (averaged over the course of
the first Loan Year), payable at the first anniversary
of the Closing Date (as defined in Section 2.5 hereof);
(ii) During the second Loan Year and each Loan
Year thereafter, Borrower shall pay and Lender shall
receive compensation equal to the amount by which
$1,000,000 exceeds the Average Annual Loan Balance,
multiplied by the applicable Interest Rate specified in
this Agreement (averaged over the course of the
applicable Loan Year), payable at the second
anniversary of the Closing Date and each anniversary
thereafter, as applicable.
A "LOAN YEAR" means any period during the Term commencing on
________ in one year and ending on _____ in the next following
year, with the first Loan Year being the period commencing on
__________, 1997 and ending on ________, 1998.
Notwithstanding the provisions of the immediately preceding
sentence, Lender shall have no obligation to disburse to Borrower
any amounts deemed to have been borrowed for purposes of meeting
the Minimum Borrowing requirement unless Borrower has actually
requested such disbursement from Lender and unless the Gross and
Net Availability for Borrower is sufficient to support such
disbursement.
2.2 The amount of any term loan being made by Lender to
Borrower is set forth in Section 10.2 ("Term Loan").
2.3 Accommodations.
--------------
(a) Lender may, in its sole discretion, issue or cause to
be issued, from time to time at Borrower's request and on terms
and conditions and for purposes satisfactory to Lender, credit
accommodations consisting of letters of credit, bankers'
acceptances, merchandise purchase guaranties or other guaranties
or indemnities for Borrower's account ("Accommodations").
Borrower shall execute and perform additional agreements relating
to the Accommodations in form and substance acceptable to Lender
and the issuer of any Accommodations, all of which shall
supplement the rights and remedies granted herein. Any payments
made by Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans to
Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower
shall pay monthly to Lender, on the first day of each month, a
charge on open Accommodations at the rate per annum (if any) set
forth in Section 10.3 (the "Accommodation Charges").
(c) No Accommodation will be issued unless the full amount
of the Accommodation requested, plus fees and costs for issuance,
is less than the Net Availability existing immediately prior to
the issuance of the requested Accommodation, or if the requested
Accommodation would cause the outstanding Obligations to exceed
the Maximum Credit, or cause the open amount of Accommodations to
exceed, at any time, the Accommodation sublimit (if any) set
forth in Section 10.3.
(d) All indebtedness, liabilities and obligations of any
sort whatsoever, however arising, whether present or future,
fixed or contingent, secured or unsecured, due or to become due,
paid or incurred, arising or incurred in connection with any
Accommodation shall be included in the term "Obligations", as
defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation; (ii)
all amounts charged or chargeable to Borrower or to Lender by any
bank, other financial institution or correspondent bank which
opens, issues or is involved with such Accommodations; (iii)
Lender's Accommodation Charges and all fees, costs and other
charges of any issuer of any Accommodation; and (iv) all duties,
freight, taxes, costs, insurance and all such other charges and
expenses which may pertain directly or indirectly to any
Obligations or Accommodations or to the goods or documents
relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold
Lender harmless from any and all loss, claim or liability
(including reasonable attorneys' fees) arising from any
transactions or occurrences relating to any Accommodation
established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder,
including any such loss or claim due to any action taken by an
issuer of any Accommodation. Borrower further agrees to
indemnify and hold Lender harmless for any errors or omissions in
connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's
unconditional obligation to indemnify and hold Lender harmless
under this provision shall not be modified or diminished for any
reason or in any manner whatsoever, except for Lender's wilful
misconduct. Borrower agrees that any charges made to Lender by
any issuer of any Accommodation shall be conclusive on Borrower
and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of
any goods to the documents presented; the validity or genuineness
of any documents; delay, default, or fraud by the Borrower or
shipper and/or anyone else in connection with the Accommodations
or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if
taken in good faith, or any action taken by an issuer of any
Accommodation, under or in connection with any Accommodation,
shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have
the full right and authority to clear and resolve any questions
of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute for
Borrower's account any and all applications for steamship or
airway guarantees, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any
of the applications or Accommodations. All of the foregoing
actions may be taken in Lender's sole name, and the issuer
thereof shall be entitled to comply with and honor any and all
such documents or instruments executed by or received solely from
Lender, all without any notice to or any consent from Borrower.
None of the foregoing actions described in this subsection (g)
may be taken by Borrower without Lender's express written
consent.
2.4 Certain Amounts Due Upon Demand.
-------------------------------
Lender may, in its sole discretion, make or permit Revolving
Loans, Accommodations or other Obligations in excess of the
Maximum Credit, Gross or Net Availability or applicable formulas
or sublimits. All or any portion of such excess(es) shall be
immediately due and payable upon Lender's demand.
2.5 Cash Losses; Reduction in Advance Percentages.
---------------------------------------------
In the event Borrowers' Cash Losses, cumulative from the date of
this Agreement (the "Closing Date") through the initial Term of
this Agreement, exceed $350,000, and such losses in excess of
$350,000 are not cured by cash contributions to capital, the
pledge to Lender of cash collateral on terms acceptable to Lender
or by such other contribution to Borrowers as is satisfactory to
Lender within three (3) months of such loss, then Lender, at its
option, can on ten (10) days' notice, reduce the Eligible
Accounts Percentage and/or the Eligible Inventory Percentage.
Cash Losses for the purpose of this Agreement are defined as net
income plus depreciation minus debt service minus non-financed
capital expenditures plus cash equity contributions, all
determined in accordance with generally accepted account
principles consistently applied.
SECTION 3. INTEREST AND FEES
3.1 Interest.
-------
(a) Interest on the Revolving Loans and Term Loans (if any) shall
be payable by Borrower on the first day of each month, calculated
upon the closing daily balances in the loan account of Borrower
for each day during the immediately preceding month, at the per
annum rate set forth as the Interest Rate in Section 10.4(a). The
Interest Rate shall increase or decrease by an amount equal to
each increase or decrease, respectively, in the Prime Rate (as
defined below), effective as of the date of each such change. On
and after any Event of Default (but only during the continuance
of such Event of Default) or termination or non-renewal hereof,
interest on all unpaid Obligations shall accrue at a rate equal
to two percent (2%) per annum in excess of the Interest Rate
otherwise payable until such time as all Obligations are
indefeasibly paid in full (notwithstanding entry of any judgment
against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. In no
event shall charges constituting interest exceed the rate
permitted under any applicable law or regulation, and if any
provision of this Agreement is in contravention of any such law
or regulation, such provision shall be deemed amended to conform
thereto.
(b) The "PRIME RATE" is the rate of interest publicly
announced by The Chase Manhattan Bank in New York, New York, or
its successors, and assigns from time to time as its prime rate
(the Prime Rate is not intended to be the lowest rate of interest
charged by The Chase Manhattan Bank to its borrowers).
3.2 Facility Fee.
------------
Borrower shall pay Lender on the Closing Date, on each
anniversary of the Closing Date, a Facility Fee in the amount set
forth in Section 10.4(b), which fee for the initial term of this
Agreement is fully earned as of the date hereof.
3.3 Account Servicing Fee.
---------------------
If applicable, Borrower shall pay Lender monthly, on the first
day of each month during the initial and each renewal Term an
Account Servicing Fee for the immediately preceding month (or
part thereof) in the amount set forth in Section 10.4(c).
3.4 Unused Line Fee.
---------------
Borrower shall pay Lender monthly, on the first day of each
month, in arrears, an Unused Line Fee for each month during the
initial and each renewal Term at the rate per annum set forth in
Section 10.4(d), calculated upon the amount, if any, by which
$1,000,000 exceeds the average outstanding daily principal
balance during the preceding month of all Revolving Loans,
Accommodations and any Term Loan.
3.5 Charges to Loan Account.
-----------------------
At Lender's option, all payments of principal, interest, fees,
costs, expenses and other charges provided for in this Agreement,
or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as
principal to any loan account of Borrower maintained by Lender.
Interest, fees for Accommodations, the Unused Line Fee and any
other amounts payable by Borrower to Lender based on a per annum
rate shall be calculated on the basis of actual days elapsed over
a 360-day year.
3.6 Credit Balances.
---------------
For purposes of calculating any interest, fees, balances or
expenses hereunder, the outstanding daily principal balance of
the Revolving Loans shall be deemed to be zero in the event that
the outstanding daily principal balance of the Revolving Loans is
a credit balance.
SECTION 4. GRANT OF SECURITY INTEREST
--------------------------
4.1 Grant of Security Interest.
--------------------------
To secure the payment and performance in full of all Obligations,
each Borrower hereby grants to Lender a continuing security
interest in and lien upon, and a right of setoff against, and
Borrower hereby collaterally assigns and pledges to Lender, all
of the Collateral, including any Collateral not deemed eligible
for lending purposes.
4.2 "OBLIGATIONS"
-------------
shall mean any and all Revolving Loans, Term Loans,
Accommodations and all other indebtedness, liabilities and
obligations of every kind, nature and description owing by
Borrowers to Lender and/or its affiliates, including principal,
interest, charges, fees and expenses, however evidenced, whether
as principal, surety, endorser, guarantor or otherwise, whether
arising under this Agreement or otherwise, whether now existing
or hereafter arising, whether arising before, during or after the
initial or any renewal Term or after the commencement of any case
with respect to any Borrower under the United States Bankruptcy
Code or any similar statute, whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or
howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment,
merger with any other entity, participations or interests of
Lender in the obligations of any Borrower to others, assumption,
operation of law, subrogation or otherwise and shall also include
all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "COLLATERAL" shall mean all of the following property
of each Borrower:
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of all: accounts,
interests in goods represented by accounts, returned, reclaimed
or repossessed goods with respect thereto and rights as an unpaid
vendor; contract rights; chattel paper; investment property;
general intangibles (including, but not limited to, tax and duty
refunds, registered and unregistered patents, trademarks, service
marks, copyrights, trade names, applications for the foregoing,
trade secrets, goodwill, processes, drawings, blueprints,
customer lists, licenses, whether as licensor or licensee, choses
in action and other claims, and existing and future leasehold
interests in equipment and fixtures); documents; instruments;
letters of credit, bankers' acceptances or guaranties; cash
monies, deposits, securities, bank accounts, deposit accounts,
credits and other property now or hereafter held in any capacity
by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrowers or at any other
depository or other institution; agreements or property securing
or relating to any of the items referred to above;
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of goods,
including, but not limited to:
All inventory, wherever located, whether now
owned or hereafter acquired, of whatever
kind, nature or description, including all
raw materials, work-in-process, finished
goods, and materials to be used or consumed
in Borrower's business; and all names or
marks affixed to or to be affixed thereto for
purposes of selling same by the seller,
manufacturer, lessor or licensor thereof;
All equipment and fixtures, wherever located,
whether now owned or hereafter acquired,
including, without limitation, all machinery,
equipment, motor vehicles, furniture and
fixtures, and any and all additions,
substitutions, replacements (including spare
parts), and accessions thereof and thereto;
All consumer goods, farm products, crops,
timber, minerals or the like (including oil
and gas), wherever located, whether now owned
or hereafter acquired, of whatever kind,
nature or description;
All now owned and hereafter acquired right, title and interests
of each Borrower in, to and in respect of any personal property
in or upon which Lender has or may hereafter have a security
interest, lien or right of setoff;
All present and future books and records relating to any of the
above including, without limitation, all computer programs,
printed output and computer readable data in the possession or
control of any Borrower, any computer service bureau or other
third party;
All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance
proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
-----------------------------
5.1 Collections.
-----------
Each Borrower shall, at such Borrower's expense and in the manner
requested by Lender from time to time, direct that remittances
and all other proceeds of accounts and other Collateral shall be
sent to a lock box designated by and/or maintained in the name of
Lender, and deposited into a bank account now or hereafter
selected by Lender and maintained in the name of Lender under
arrangements with the depository bank under which all funds
deposited to such bank account are required to be transferred
solely to Lender. Borrower shall bear all risk of loss of any
funds deposited into such account. In connection therewith,
Borrower shall execute such lock box and bank account agreements
as Lender shall specify. Any collections or other proceeds
received by Borrower shall be held in trust for Lender and
immediately remitted to Lender in kind.
5.2 Payments.
--------
All Obligations shall be payable at Lender's office set forth
below or at Lender's bank designated in Section 10.6(b) or at
such other bank or place as Lender may expressly designate from
time to time for purposes of this Section. Lender shall apply
all proceeds of accounts or other Collateral received by Lender
and all other payments in respect of the Obligations to the
Revolving Loans whether or not then due or to any other
Obligations then due, in whatever order or manner Lender shall
determine. For purposes of determining Gross and Net Availability
and for the calculation of Minimum Borrowings, remittances and
other payments with respect to the Collateral and Obligations
will be treated as credited to the loan account of Borrower
maintained by Lender and Collateral balances to which they
relate, upon the date of Lender's receipt of advice from Lender's
bank that such remittances or other payments have been credited
to Lender's account or in the case of remittances or other
payments received directly in kind by Lender, upon the date of
Lender's deposit thereof at Lender's bank, subject to final
payment and collection. In computing interest charges, the loan
account of Borrower maintained by Lender will be credited with
remittances and other payments three (3) Business Days after the
day Lender has received advice of receipt of remittances in
Lender's account at Lender's Bank. For purposes of this
Agreement, "Business Day" shall mean any day other than a
Saturday, Sunday or any other day on which banks located in
states where Lender has its offices are authorized to close.
5.3 Loan Account Statements.
-----------------------
Lender shall render to Borrower monthly a loan account statement.
Each statement shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender
receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific
exceptions by Borrower to that statement.
5.4 Direct Collections.
------------------
Lender may, at any time, whether or not an Event of Default has
occurred, without notice to or assent of Borrower, (a) notify any
account debtor that the accounts and other Collateral which
includes a monetary obligation have been assigned to Lender by
Borrower and that payment thereof is to be made to the order of
and directly to Lender, (b) send, or cause to be sent by its
designee, requests (which may identify the sender by a pseudonym)
for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect
thereto, and (c) demand, collect or enforce payment of any
accounts or such other Collateral, but without any duty to do so,
and Lender shall not be liable for any failure to collect or
enforce payment thereof. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee,
shall state that the accounts and such other Collateral have been
assigned to Lender and are payable directly and only to Lender.
5.5 Attorney-in-Fact.
----------------
Each Borrower hereby appoints Lender and any designee of Lender
as Borrower's attorney-in-fact and authorizes Lender or such
designee, at Borrower's sole expense, to exercise at any times in
Lender's or such designee's discretion all or any of the
following powers, which powers of attorney, being coupled with an
interest, shall be irrevocable until all Obligations have been
paid in full: (a) receive, take, endorse, assign, deliver, accept
and deposit, in the name of Lender or Borrower, any and all cash,
checks, commercial paper, drafts, remittances and other
instruments and documents relating to the Collateral or the
proceeds thereof, (b) transmit to account debtors, other obligors
or any bailees notice of the interest of Lender in the Collateral
or request from account debtors or such other obligors or bailees
at any time, in the name of Borrower or Lender or any designee of
Lender, information concerning the Collateral and any amounts
owing with respect thereto, (c) notify account debtors or other
obligors to make payment directly to Lender, or notify bailees as
to the disposition of Collateral, (d) take or bring, in the name
of Lender or Borrower, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of
or other realization upon the accounts and other Collateral, (e)
after an Event of Default, change the address for delivery of
mail to Borrower and to receive and open mail addressed to
Borrower, (f) after an Event of Default, extend the time of
payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all
accounts or other Collateral which includes a monetary obligation
and discharge or release the account debtor or other obligor,
without affecting any of the Obligations, and (g) execute in the
name of Borrower and file against Borrower in favor of Lender
financing statements or amendments with respect to the
Collateral.
5.6 Liability.
---------
Each Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising
from any acts under this Agreement or in furtherance thereof,
whether as attorney-in-fact or otherwise, whether of omission or
commission, and whether based upon any error of judgment or
mistake of law or fact, except for gross negligence or willful
misconduct. In no event will Lender have any liability to
Borrower for lost profits or other special or consequential
damages.
5.7 Administration of Accounts.
--------------------------
After written notice by Lender to Borrower and automatically,
without notice, after an Event of Default, Borrower shall not,
without the prior written consent of Lender in each instance, (a)
grant any extension of time of payment of any of the accounts or
any other Collateral which includes a monetary obligation, (b)
compromise or settle any of the accounts or any such other
Collateral for less than the full amount thereof, (c) release in
whole or in part any account debtor or other person liable for
the payment of any of the accounts or any such other Collateral,
or (d) grant any credits, discounts, allowances, deductions,
return authorizations or the like with respect to any of the
accounts or any such other Collateral.
5.8 Documents.
---------
At such times as Lender may request and in the manner specified
by Lender, Borrower shall deliver to Lender or Lender's
representative, as Lender shall designate, copies or original
invoices, agreements, proofs of rendition of services and
delivery of goods and other documents evidencing or relating to
the transactions which gave rise to accounts or other Collateral,
together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and
confirmatory assignments to Lender of the accounts or other
Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower. Without limiting the provisions of Section
5.7, Borrower's granting of credits, discounts, allowances,
deductions, return authorizations or the like will be promptly
reported to Lender in writing. In no event shall any such
schedule or confirmatory assignment (or the absence thereof or
omission of any of the accounts or other Collateral therefrom)
limit or in any way be construed as a waiver, limitation or
modification of the security interests or rights of Lender or the
warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper
delivered to Lender by Borrower may be destroyed or otherwise
disposed of by Lender six (6) months after receipt by Lender,
unless Borrower requests their return in writing in advance and
makes prior arrangements for their return at Borrower's expense.
5.9 Access.
------
From time to time as requested by Lender, at the sole expense of
Borrower, Lender or its designee shall have access, prior to an
Event of Default during normal business hours and on or after an
Event of Default at any time, to all of the premises where
Collateral is located for the purposes of inspecting the
Collateral, and all Borrower's books and records (provided, that
in conducting such inspections, Lender shall use reasonable
efforts not to disturb unnecessarily the conduct of Borrower's
ordinary business operations), and Borrower shall permit Lender
or its designee to make such copies of such books and records or
extracts therefrom as Lender may request. Without expense to
Lender, Lender may use such of Borrower's personnel, equipment,
including computer equipment, programs, printed output and
computer readable media, supplies and premises for the collection
of accounts and realization on other Collateral as Lender, in its
sole discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and
deliver to Lender at Borrower's expense all financial
information, books and records, work papers, management reports
and other information in their possession regarding Borrower, but
only following the occurrence and during the continuance of an
Event of Default.
5.10 Environmental Audits.
--------------------
From time to time, as requested by Lender, at the sole expense of
Borrower, Borrower shall provide Lender, or its designee,
complete access (during normal business hours and if no Event of
Default then exists upon reasonable prior notice) to all of
Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender or its designees
may deem necessary. Borrower agrees to cooperate with Lender
with respect to any environmental audit conducted by Lender or
its designee pursuant to this Section 5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS
-------------------------------------------
Borrower hereby represents, warrants and covenants to Lender
the following, the truth and accuracy of which, and compliance
with which, shall be continuing conditions of the making of loans
or other credit accommodations by Lender to Borrower:
6.1 Financial and Other Reports.
---------------------------
Each Borrower shall keep and maintain its books and records in
accordance with generally accepted accounting principles,
consistently applied. Borrower shall, at its sole expense, on or
before the fifteenth (15th) day of each month, deliver to Lender:
(a) true and complete monthly agings of its accounts receivable,
accounts payable and notes payable, including a monthly aging of
all sales, with sales subject to Chargebacks segregated from all
other sales; (b) weekly inventory reports; and (c) monthly
internally prepared interim financial statements. Annually,
Borrower shall deliver audited financial statements of Borrower
accompanied by the report and opinion thereon of independent
certified public accountants acceptable to Lender, as soon as
available, but in no event later than ninety (90) days after the
end of Borrower's fiscal year. All of the foregoing shall be in
such form and together with such information with respect to the
business of Borrower or any guarantor, as Lender may in each case
reasonably request.
6.2 Trade Names.
-----------
Borrower may from time to time render invoices to account debtors
under its trade names set forth in Section 10.6(g) after Lender
has received prior written notice from Borrower of the use of
such trade names and as to which, Borrower agrees that: (a) each
trade name does not refer to another corporation or other legal
entity, (b) all accounts and proceeds thereof (including any
returned merchandise) invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement, and (c)
all schedules of accounts and confirmatory assignments including
any sales made or services rendered using the trade name shall
show Borrower's name as assignor and Lender is authorized to
receive, endorse and deposit to any loan account of Borrower
maintained by Lender all checks or other remittances made payable
to any trade name of Borrower representing payment with respect
to such sales or services.
6.3 Losses.
------
Borrower shall promptly notify Lender in writing of any loss,
damage, investigation, action, suit, proceeding or claim relating
to a material portion of the Collateral or which may result in
any material adverse change in Borrower's business, assets,
liabilities or condition, financial or otherwise.
6.4 Books and Records.
-----------------
Borrower's books and records concerning accounts and its chief
executive office are and shall be maintained only at the address
set forth in Section 10.6(d). Borrower's only other places of
business and the only other locations of Collateral, if any, are
and shall be the addresses set forth in Section 10.6 hereof,
except Borrower may change such locations or open a new place of
business after thirty (30) days prior written notice to Lender.
Prior to any change in location or opening of any new place of
business, Borrower shall execute and deliver or cause to be
executed and delivered to Lender such financing statements,
financing documents and security and other agreements as Lender
may reasonably require, including, without limitation, those
described in Section 6.14.
6.5 Title.
-----
Borrower has and at all times will continue to have good and
marketable title to all of the Collateral, free and clear of all
liens, security interests, claims or encumbrances of any kind
except in favor of Lender and except, if any, those set forth on
Schedule A hereto.
6.6 Disposition of Assets.
---------------------
Borrower shall not directly or indirectly: (a) sell, lease,
transfer, assign, abandon or otherwise dispose of any part of the
Collateral or any material portion of its other assets (other
than sales of inventory to buyers in the ordinary course of
business) or (b) consolidate with or merge with or into any other
entity, or permit any other entity to consolidate with or merge
with or into Borrower except that any of the Borrowers other than
Bradley Pharmaceuticals, Inc. may merge with or into Bradley
Pharmaceuticals, Inc. provided Bradley Pharmaceuticals, Inc. is
the surviving corporation or (c) form or acquire any interest in
any firm, corporation or other entity.
6.7 Insurance.
---------
Borrower shall at all times maintain, with financially sound and
reputable insurers, insurance (including, without limitation, at
the option of Lender, earthquake insurance) with respect to the
Collateral and other assets. All such insurance policies shall be
in such form, substance, amounts and coverage as may be
satisfactory to Lender and shall provide for thirty (30) days'
prior written notice to Lender of cancellation or reduction of
coverage. Borrower hereby irrevocably appoints Lender and any
designee of Lender as attorney-in-fact for Borrower to obtain at
Borrower's expense, any such insurance should Borrower fail to do
so and, following the occurrence and during the continuance of an
Event of Default to adjust or settle any claim or other matter
under or arising pursuant to such insurance or to amend or cancel
such insurance. Borrower shall deliver to Lender evidence of such
insurance and a lender's loss payable endorsement satisfactory to
Lender as to all existing and future insurance policies with
respect to the Collateral. Borrower shall deliver to Lender, in
kind, all instruments representing proceeds of insurance received
by Borrower. Lender may apply any insurance proceeds received at
any time to the cost of repairs to or replacement of any portion
of the Collateral and/or, at Lender's option, to payment of or as
security for any of the Obligations, whether or not due, in any
order or manner as Lender determines.
6.8 Compliance With Laws.
--------------------
Borrower is and at all times will continue to be in compliance
with the requirements of all material laws, rules, regulations
and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to taxes,
payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement
and welfare benefits, employee health and safety, or
environmental matters) and all material agreements or other
instruments binding on Borrower or its property. All of
Borrower's inventory shall be produced in accordance with the
requirements of the CGMP Standards and the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and
orders related thereto. Borrower shall pay and discharge all
taxes, assessments and governmental charges against Borrower or
any Collateral prior to the date on which penalties are imposed
or liens attach with respect thereto, unless the same are being
contested in good faith and, at Lender's option, Reserves are
established for the amount contested and penalties which may
accrue thereon.
6.9 Accounts.
--------
With respect to each account deemed an Eligible Account, except
as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer
satisfied. As to each account, except as disclosed in writing to
Lender at the time such account arises (a) each is valid and
legally enforceable and represents an undisputed bona fide
indebtedness incurred by the account debtor for the sum reported
to Lender, (b) each arises from an absolute and unconditional
sale of goods, without any right of return or consignment, or
from a completed rendition of services, (c) each is not, at the
time such account arises, subject to any defense, offset,
dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount other than the Chargebacks,
and (d) all statements made and all unpaid balances and other
information appearing in the invoices, agreements, proofs of
rendition of services and delivery of goods and other
documentation relating to the accounts, and all confirmatory
assignments, schedules, statements of account and books and
records with respect thereto, are true and correct in all
material respects and in all material respects what they purport
to be.
6.10 Equipment.
---------
With respect to Borrower's equipment, Borrower shall keep the
equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 Financial Covenants.
-------------------
Borrower shall at all times maintain working capital and net
worth (each as determined in accordance with generally accepted
accounting principles, in effect on the date hereof, consistently
applied) in the amounts (if any) set forth in Section 10.5(a) and
(b) and Borrower shall not, directly or indirectly, expend or
commit to expend, for fixed or capital assets (including capital
lease obligations) an amount in excess of the capital expenditure
limit (if any) set forth in Section 10.5(c) in any fiscal year of
Borrower.
6.12 Affiliated Transactions.
-----------------------
No Borrower will, directly or indirectly: (a) lend or advance
money or property to, guarantee or assume indebtedness of, or
invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; or (b) declare, pay or make
any dividend, redemption or other distribution on account of any
shares of any class of stock of Borrower now or hereafter
outstanding except that any of the Borrowers other than Bradley
Pharmaceuticals, Inc. may make distributions to any other
Borrower or to Bradley Pharmaceuticals, Inc. and any Borrower may
make distributions in capital stock (or any options or warrants
for such stock); or (c) make any payment of the principal amount
of or interest on any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower; or (d) except in
the ordinary course of its business, and not to exceed $50,000 in
the aggregate for all Borrowers in any Loan Year, make any loans
or advances to any officer, director, employee, shareholder or
affiliate of Borrower, (e) enter into any sale, lease or other
transaction with any officer, director, employee, shareholder or
affiliate of Borrower on terms that are less favorable to
Borrower than those which might be obtained at the time from
persons who are not an officer, director, employee, shareholder
or affiliate of Borrower.
6.13 Fees and Expenses.
-----------------
Borrowers shall pay, on Lender's demand, all costs, expenses,
filing fees and taxes payable in connection with the preparation,
execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement and all other existing
and future agreements or documents contemplated herein or related
hereto, including any amendments, waivers, supplements or
consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defense asserted by
Lender or claims or defense against Lender asserted by Borrower,
any guarantor or any third party directly or indirectly arising
out of or related to the relationship between Borrower and Lender
or any guarantor and Lender, including, but not limited to the
following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with
respect to Borrower or any guarantor under the United States
Bankruptcy Code or any similar statute: (a) all costs and
expenses of filing or recording (including Uniform Commercial
Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees,
if applicable); (b) all title insurance and other insurance
premiums, appraisal fees, fees incurred in connection with any
environmental report, audit or survey and search fees; (c) all
fees as then in effect relating to the wire transfer of loan
proceeds and other funds and fees then in effect for returned
checks and credit reports; (d) all expenses and costs heretofore
and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate set
forth in Section 10.4(e) for Lender's examiners in the field and
office; and (e) the costs, reasonable fees and disbursements of
in-house and outside counsel to Lender, including but not limited
to such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals
arising therefrom.
6.14 Further Assurances.
------------------
At the request of Lender, at any time and from time to time, at
Borrower's sole expense, Borrower shall execute and deliver or
cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and
subordination agreements from mortgagees or other holders of
security interests or liens, landlords or bailees, and do or
cause to be done such further acts as Lender, in its discretion,
deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof
in the Collateral and otherwise to effectuate the provisions and
purposes of this Agreement. Borrower hereby authorizes Lender to
file financing statements or amendments against Borrower in favor
of Lender with respect to the Collateral, without Borrower's
signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any
financing statements signed by Borrower.
6.15 Revolving Loan.
--------------
The Revolving Loan will not at any time exceed the Net
Availability unless Lender has consented.
6.16 Environmental Condition.
-----------------------
None of Borrower's properties or assets has ever been designated
or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any
environmental protection statute has attached to any revenues or
to any real or personal property owned by Borrower. Borrower has
not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state
governmental agency any action or omission by Borrower resulting
in the releasing, or otherwise exposing of hazardous waste or
hazardous substances into the environment. Borrower is in
compliance (in all material respects) with all statutes,
regulations, ordinances and other legal requirements pertaining
to the production, storage, handling, treatment, release,
transportation or disposal of any hazardous waste or hazardous
substance.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
------------------------------
7.1 Events of Default.
-----------------
All Obligations shall be immediately due and payable, without
notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate
automatically, upon the termination or non-renewal of this
Agreement or, at Lender's option, upon or at any time after the
occurrence or existence of any one or more of the following
"EVENTS OF DEFAULT":
(a) Any Borrower fails to pay when due any of the
Obligations or fails to perform any of the terms of this
Agreement or any other existing or future financing, security or
other agreement between such Borrower and Lender or any affiliate
of Lender;
(b) Any representation, warranty or statement of fact made
by any Borrower to Lender in this Agreement or any other
agreement, schedule, confirmatory assignment or otherwise, or to
any affiliate of Lender, shall prove inaccurate or misleading in
any material respect;
(c) Any guarantor revokes, terminates or fails to perform
any of the terms of any guaranty, endorsement or other agreement
of such party in favor of Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of
$25,000 or any injunction or attachment is obtained against
Borrower or any guarantor which remains unstayed for a period of
ten (10) days or is enforced;
(e) Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural
person, dies, or Borrower or any guarantor which is a partnership
or corporation, is dissolved, or Borrower or any guarantor which
is a corporation fails to maintain its corporate existence in
good standing, or the usual business of Borrower or any guarantor
ceases or is suspended;
(f) Any change in the chief executive officer or
controlling ownership of Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of
a bulk transfer or calls a general meeting of its creditors or
principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect
or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor;
(i) The indictment or threatened indictment of Borrower or
any guarantor under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against
Borrower or any guarantor, pursuant to which statute or
proceedings the penalties or remedies sought or available include
forfeiture of any material portion of the property of Borrower or
such guarantor;
(j) Any default or event of default occurs on the part of
Borrower under any agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its property
is bound, creating or relating to any indebtedness of Borrower to
any person or entity other than Lender if the effect of such
default or event of default is to accelerate, or to permit the
acceleration of the maturity of such indebtedness;
(k) Lender in good faith believes that either (i) the
prospect of payment or performance of the Obligations is
materially impaired or (ii) the Collateral is not sufficient to
secure fully the Obligations; or
(l) any material change occurs in the nature or conduct of
Borrower's business.
7.2 Remedies.
--------
Upon the occurrence of an Event of Default and at any time
thereafter, Lender shall have all rights and remedies provided in
this Agreement, any other agreements between Borrower and Lender,
the Uniform Commercial Code or other applicable law, all of which
rights and remedies may be exercised without notice to Borrower,
all such notices being hereby waived, except such notice as is
expressly provided for hereunder or is not waivable under
applicable law. All rights and remedies of Lender are cumulative
and not exclusive and are enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting
the foregoing, Lender may (a) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender, (b)
with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any
portion of the Collateral, (c) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all
of the Collateral at any place and time designated by Lender, (d)
collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (e) extend the time of payment of,
compromise or settle for cash, credit, return of merchandise, and
upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or
release the account debtor or other obligor, without affecting
any of the Obligations, (f) sell, lease, transfer, assign,
deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with
respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or
for future delivery, with the Lender having the right to purchase
the whole or any part of the Collateral at any such public sale,
all of the foregoing being free from any right or equity of
redemption of Borrower, which right or equity of redemption is
hereby expressly waived and released by Borrower. If any of the
Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, ten (10)
days prior notice by Lender to Borrower designating the time and
place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall
be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover
any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which
might otherwise be required.
7.3 Application of Proceeds.
-----------------------
Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the
Obligations, in whole or in part (including reasonable attorneys'
fees and legal expenses incurred by Lender with respect thereto
or otherwise chargeable to Borrower) and in such order as Lender
may elect, whether or not then due. Borrower shall remain liable
to Lender for the payment of any deficiency together with
interest at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default.
----------------------------------------------
Lender may, at its option, cure any default by Borrower under any
agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, discharge taxes, liens,
security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur
any expense or perform any act which, in Lender's sole judgment,
is necessary or appropriate to preserve, protect, insure,
maintain, or realize upon the Collateral. Lender may charge
Borrower's loan account for any amounts so expended, such amounts
to be repayable by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any
obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND
CONSENTS
--------------------------------------------
8.1 JURY TRIAL WAIVER.
-----------------
EACH BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS
CONDUCT BY BORROWER OR LENDER, OR, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN
BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST
PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims.
-------------
Borrower waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any kind, nature or description in
any action or proceeding instituted by Lender with respect to
this Agreement, the Obligations, the Collateral or any matter
arising therefrom or relating thereto, except compulsory
counterclaims.
8.3 Jurisdiction.
------------
Borrower hereby irrevocably submits and consents to the
nonexclusive jurisdiction of the State and Federal Courts located
in the State in which the office of Lender designated in Section
10.6(a) is located and any other State where any Collateral is
located with respect to any action or proceeding arising out of
this Agreement, the Obligations, the Collateral or any matter
arising therefrom or relating thereto. In any such action or
proceeding, Borrower waives personal service of the summons and
complaint or other process and papers therein and agrees that the
service thereof may be made by certified mail (return receipt
requested) directed to Borrower at its chief executive office set
forth herein or other address thereof of which Lender has
received notice as provided herein, service to be deemed complete
five (5) days after mailing, or as permitted under the rules of
either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated in a Federal Court
located in the district, or a State Court in the State and
County, in which the office of Lender designated in Section
10.6(a) is located and Borrower waives any objection based on
FORUM NON CONVENIENS and any objection to venue in connection
therewith.
8.4 No Waiver by Lender.
-------------------
Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights or
remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or
remedy on any one occasion shall not be construed as acquiescence
to or waiver of any such right or remedy which Lender would
otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term.
----
This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force
and effect for a term of three (3) years from the date hereof and
shall be deemed automatically renewed for successive terms of two
(2) years thereafter unless terminated as of the end of the
initial or any renewal term (each a "TERM") by either party
giving the other written notice at least sixty (60) days' prior
to the end of the then-current Term.
9.2 Early Termination.
-----------------
Borrower may also terminate this Agreement by giving Lender at
least thirty (30) days prior written notice at any time upon
payment in full of all of the Obligations as provided herein,
including the early termination fee provided below. Lender shall
also have the right to terminate this Agreement at any time upon
or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an
Event of Default, or if Borrower shall terminate this Agreement
as permitted herein effective prior to the end of the then-
current Term, in addition to all other Obligations, Borrower
shall pay to Lender, upon the effective date of termination, in
view of the impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits, an early
termination fee equal to $60,000 if Borrowers' written notice of
termination is received by Lender or termination by Lender is
effective prior to the end of the second Loan Year of the initial
Term of this Agreement, and $40,000 if such termination occurs at
any time thereafter, other than at the end of the then-current
Term.
9.3 Additional Cash Collateral.
--------------------------
Upon termination of this Agreement by Borrower, as permitted
herein, in addition to payment of all Obligations which are not
contingent, Borrower shall deposit such amount of cash collateral
as Lender determines is necessary to secure Lender from loss,
cost, damage or expense, including reasonable attorneys' fees, in
connection with any open Accommodations or remittance items or
other payments provisionally credited to the Obligations and/or
to which Lender has not yet received final and indefeasible
payment.
9.4 Notices.
-------
Except as otherwise provided, all notices, requests and demands
hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set
forth in Section 10.6(d), or to such other address as either
party may designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or made:
if by hand, immediately upon delivery; if by telex, telegram or
telecopy (fax), immediately upon receipt; if by overnight
delivery service, one day after dispatch; and if by first class
or certified mail, three (3) days after mailing.
9.5 Severability.
------------
If any provision of this Agreement is held to be invalid or
unenforceable, such provision shall not affect this Agreement as
a whole, but this Agreement shall be construed as though it did
not contain the particular provision held to be invalid or
unenforceable.
9.6 Entire Agreement; Amendments; Assignments.
-----------------------------------------
This Agreement contains the entire agreement of the parties as to
the subject matter hereof, all prior commitments, proposals and
negotiations concerning the subject matter hereof being merged
herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer
of Lender and Borrower. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their
respective successors and assigns, except that any obligation of
Lender under this Agreement shall not be assignable nor inure to
the successors and assigns of Borrower.
9.7 Discharge of Borrower.
---------------------
No termination of this Agreement shall relieve or discharge
Borrower of its Obligations, grants of Collateral, duties and
covenants hereunder or otherwise until such time as all
Obligations to Lender have been indefeasibly paid and satisfied
in full, including, without limitation, the continuation and
survival in full force and effect of all security interests and
liens of Lender in and upon all then existing and thereafter-
arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 Usage.
-----
All terms used herein which are defined in the Uniform Commercial
Code shall have the meanings given therein unless otherwise
defined in this Agreement and all references to the singular or
plural herein shall also mean the plural or singular,
respectively.
9.9 Joint and Several Liability.
---------------------------
The liability of the Borrowers for all amounts due to Lender
under this Agreement shall be joint and several regardless of
which Borrower actually receives loans or other extensions of
credit hereunder or the amount of such loans received or the
manner in which Lender accounts for such loans or other
extensions of credit or on its books and records. Each
Borrower's Obligations with respect to Revolving Loans made to it
or Accommodations issued for its account, and related fees, costs
and expenses, and each Borrower's Obligations arising as a result
of the joint and several liability of the Borrowers hereunder,
with respect to Revolving Loans made to the other Borrowers
hereunder or Accommodations issued for the account of the other
Borrowers hereunder, together with the related fees, costs and
expenses, shall be separate and distinct obligations, all of
which are primary obligations of each Borrower.
Each Borrower's Obligations arising as a result of the joint
and several liability of the Borrowers hereunder with respect to
loans or other extensions of credit made to the other Borrowers
hereunder shall, to the fullest extent permitted by law, be
unconditional irrespective of (i) the validity, enforceability,
avoidance or subordination of the Obligations of the other
Borrowers or of any promissory note or other document evidencing
all of any part of the Obligations of the other Borrowers, (ii)
the absence of any attempt to collect the Obligations from any of
the other Borrowers, any other guarantor, or any other security
therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension, forbearance or granting of
any indulgence by Lender with respect to any provision of any
instrument evidencing the Obligations of the other Borrowers, or
any part thereof, or any other agreement now or hereafter
executed by the other Borrowers and delivered to Lender, (iv) the
failure by Lender to take any steps to perfect and maintain its
security interest in, or to preserve its rights to, any security
or collateral for the Obligations of the other Borrowers, (v)
Lender's election, in any proceeding instituted under the
Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code, (vi) any borrowing or grant of a security
interest by the other Borrowers, as debtor-in-possession under
Section 364 of the Bankruptcy Code, (vii) the disallowance of all
or any portion of Lender's claim(s) for repayment of the
Obligations of the other Borrowers under Section 502 of the
Bankruptcy Code, or (viii) any other circumstance which might
constitute a legal or equitable discharge or defense of a
guarantor or of the other Borrowers. With respect to each
Borrower's Obligations arising as a result of the joint and
several liability of the Borrowers hereunder with respect to
loans or other extensions of credit made to the other Borrowers
hereunder, such Borrower waives, until the Obligations shall have
been paid in full and the Loan Agreement shall have been
terminated, any right to enforce any right of subrogation or any
remedy which Lender now has or may hereafter have against any
Borrower, any endorser or any guarantor of all or any part of the
Obligations, and any benefit of, and any right to participate in,
any security or collateral given to Lender to secure payment of
the Obligations or any other liability of the Borrowers to
Lender, whether any such right arises by way of suretyship or
otherwise.
Upon any Event of Default, Lender may, at its sole election,
proceed directly and at once, without notice, against any
Borrower to collect and recover the full amount, or any portion
of the Obligations, without first proceeding against any other
Borrower or any other person, or against any security or
collateral for the Obligations. Each Borrower consents and
agrees that Lender shall not be under any obligation to marshall
any assets in favor of such Borrower or against or in payment of
any or all of the Obligations.
9.10 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the State in which the office of Lender set
forth in Section 10.6(a) below is located.
9.11 Agency of Bradley Pharmaceuticals, Inc. for each other
Borrower.
-------------------------------------------------------
--------
Each of the other Borrowers appoints Bradley Pharmaceuticals,
Inc. as its agent for all purposes relevant to this Agreement,
including (without limitation) the giving and receipt of notices
and the execution and delivery of all documents, instruments and
certificates contemplated herein and all modifications hereto.
Any acknowledgment, consent, direction, certification or other
action which might otherwise be valid or effective only if given
or taken by all of the Borrowers or by a Borrower other than
Bradley Pharmaceuticals, Inc., acting singly, shall be valid and
effective if given or taken only by Bradley Pharmaceuticals,
Inc., whether or not any of the other Borrowers joins therein.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $3,000,000.00
(b) Gross Availability Formulas:
Eligible Accounts Percentage
(applicable to each Borrower): 45%
Eligible Inventory Percentages
(applicable to each Borrower):
Finished Goods 40%
Raw Materials 40%
(c) Inventory Sublimit(s): $1,000,000 in the aggregate
with respect to all advances against Eligible
Inventory, but not to exceed at any given time (i) 250%
of all outstanding advances against Eligible Accounts,
or (ii) $100,000 against Eligible Inventory consisting
of raw materials.
(d) Maximum days after Invoice Date for Eligible Accounts:
90 days.
(e) Minimum Borrowing: $750,000 during the first Loan
Year and $1,000,000 for each Loan Year thereafter, as
more fully provided in Section 2.1(g) hereof.
10.2 Term Loan: Not applicable.
10.3 Accommodations: Not applicable.
10.4 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate (as defined in Section
3.1(b) hereof) plus 2.25% per annum
(b) Facility Fee: (i) $15,000, payable in full out of the
initial advances to be made to Borrowers hereunder, and
(ii) $30,000 payable in full at each anniversary of the
Closing Date during the initial Term of this Agreement,
which Facility Fee for the initial Term of this
Agreement shall be fully earned as of the Closing Date.
The Facility Fee for each renewal Term of this
Agreement is $60,000, $30,000 of which is payable on
the first day of each renewal Term (the "RENEWAL DATE")
and $30,000 is payable on the first anniversary of the
Renewal Date. The Facility Fee for each renewal Term
is fully earned as of the Renewal Date of each Term and
payment of the Facility Fee for the initial Term and
each renewal Term is secured by the Collateral.
(c) Account Servicing Fee: Not applicable.
(d) Unused Line Fee: per annum 0.5%
(e) Field Examination per diem $650
10.5 Financial Covenants:
(a) Working Capital: Not applicable.
(b) Net Worth: Not applicable.
(c) Capital Expenditures: per fiscal year Not applicable,
10.6 (a) Lender's Office: 10 South LaSalle Street
Chicago, Illinois 60603
(b) Lender's Bank: Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
(c) Borrower: (i) Bradley Pharmaceuticals, Inc., a New
Jersey corporation ("Bradley")
(ii) Doak Dermatologics, Inc., a New York
corporation ("Doak")
(iii) Bradley Pharmaceuticals (Canada),
Inc., a Canadian corporation
(iv) Bradley Pharmaceuticals Overseas, Ltd.,
a U.S. Virgin Islands corporation
(d) Borrower's Chief
Executive Office: (i) 383 Route 46 West
Fairfield, New Jersey 07004-2402
(e) Locations of Eligible
Inventory Collateral: (i) 383 Route 46 West
Fairfield, New Jersey 07004-2402
(ii) 67 Sylvester Street
Westbury, New York 11590
(iii) 62 Kinkel Street
Westbury, New York
(iv) c/o DDN/Obergfel
4605 Hickory Hill Road
Memphis, Tennessee 38141
(v) 695 Summa Avenue
Westbury, New York 11590
(f) Borrower's Other
Offices and Locations
of Collateral: (i) 666 Dundee Road
Suite 1402
Northbrook, Cook County, Illinois 60062
(ii) c/o Altaire Pharmaceuticals
25 Andrea Road
Holbrook, Suffolk County, New York 11741
(iii) c/o Alvin Last, Inc.
19 Babcock Place
Yonkers, Westchester County, New York 10701
(iv) c/o Amide Pharmaceuticals, Inc.
101 East Main street
Little Falls, New Jersey 07424
(v) c/o Denison Pharmaceuticals
60 Dunell Lane
Pawtucket, Providence County, Rhode Island 02862
(vi) c/o DM Graham Labs
58 Pearl Street
Hobart, Delaware County, New York, 13788
(vii) c/o KV Pharmaceuticals
2503 South Hanley Road
St. Louis, St. Louis County, Missouri 63144
(viii) c/o Hi Tech Pharmacal
369 Bayview Avenue
Amityville, Suffolk County, New York 11701
(ix) c/o Lini, Inc.
665 East Lincoln Avenue
Rahway, New Jersey 07065
(x) c/o Packaging Coordinators
K Street & Erie Avenue
Philadelphia, Philadelphia County, Pennsylvania 19124
(xi) c/o Phoenix Labs
175 Lauman Lane
Hicksville, Nassau County, New York 11801
(xii) c/o Reed-Lane, Inc.
550 Huyler Street
South Hackensack, New Jersey 07606
(xiii) c/o Thames Pharmacal
2100 Fifth Avenue
Ronkonkoma, Suffolk County, New York 11779
(xiv) c/o J Knipper & Co.
1645 Oak Street
Lakewood, New Jersey 08701
(g) Borrower's Trade
Names for Invoicing: Kenwood Laboratories
IN WITNESS WHEREOF, Borrower and Lender have duly
executed this Agreement this ___ day of _______, 1997.
Lender:
THE CIT GROUP/CREDIT FINANCE, INC.
By:_____________________________
Title:__________________________
Borrower:
BRADLEY PHARMACEUTICALS, INC.
By:_____________________________
Title:__________________________
DOAK DERMATOLOGICS, INC.
By:_____________________________
Title:__________________________
BRADLEY PHARMACEUTICALS (CANADA), INC.
By:_____________________________
Title:__________________________
BRADLEY PHARMACEUTICAL OVERSEAS, LTD.
By:_____________________________
Title:__________________________
<PAGE>
SCHEDULE A
PERMITTED LIENS
ASSIGNMENT, SECURITY AGREEMENT AND MORTGAGE -
TRADEMARKS AND PATENTS
---------------------
THIS AGREEMENT is made this ___ day of __________,
1997, between BRADLEY PHARMACEUTICALS, INC., a New Jersey
corporation ("Debtor") having an office at 383 Route 46 West,
Fairfield, New Jersey 07004, and The CIT Group/Credit Finance,
Inc. a Delaware corporation (the "Secured Party"), having an
office at 10 South LaSalle Street, Chicago, Illinois 60603.
WHEREAS, Debtor has adopted the terms and designs
described in Schedule A annexed hereto and made a part hereof;
WHEREAS, Debtor is the owner and holder of the patents
listed on Schedule B hereto and made a part hereof; and
WHEREAS, as a condition to the Secured Party making any
loans or advances to Debtor, Doak Dermatologics, Inc., Bradley
Pharmaceuticals (Canada), Inc. And Bradley Pharmaceuticals
Overseas, Inc. (collectively "Borrowers") pursuant to a Loan and
Security Agreement, dated as of the date hereof (the "Loan
Agreement") between Borrowers and the Secured Party, the Secured
Party has required the execution and delivery of this Agreement
by Debtor;
NOW, THEREFORE, IT IS AGREED that, for and in
consideration of the loans and advances to be made in the
discretion of Secured Party under the Loan Agreement, and other
good and valuable consideration, the receipt of which is hereby
acknowledged, and as collateral security for the full and prompt
payment and performance of all Obligations, as hereinafter
defined, Debtor does hereby mortgage to and pledge with the
Secured Party, and grant to the Secured Party a security interest
in, and all of its right, title and interest in and to, and
assigns to Secured Party (i) each of the Trademarks (as
hereinafter defined), the goodwill of the business symbolized by
each of the Trademarks, all customer lists and other records of
Debtor relating to the distribution of products bearing the
Trademarks and each of the registrations described in Schedule A,
and any formulas of Debtor used or usable in connection with the
Trademarks; (ii) each of the Patents, as hereinafter defined, on
Schedule B hereto; and (iii) any and all proceeds of the
foregoing, including, without limitation, any claims by Debtor
against third parties for past, present and future infringement
of the Trademarks or the Patents (collectively, the
"Collateral").
1. Terms defined in the Loan Agreement and not
otherwise defined herein, shall have the meaning set forth in the
Loan Agreement. As used in this Agreement, unless the context
otherwise requires:
"Trademarks" shall mean (i) all trademarks, trade
names, trade styles, service marks, prints and labels on which
said trademarks, trade names, trade styles and service marks have
appeared or appear, designs and general intangibles of like
nature, now existing or hereafter adopted or acquired, all right,
title and interest therein and thereto acquired under common law
or statute, and whether by use or registration, and all
registrations and recordings thereof, and applications therefor,
including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in
any similar office or agency of the United States, any State
thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by Debtor,
including, but not limited to, those described in Schedule A
annexed hereto and made a part hereof, and (ii) all reissues,
amendments, extensions or renewals thereof and all licenses
thereof.
"Patents" shall mean (i) all letters patent of the
United States or any other country, all right, title and interest
therein and thereto, and all registrations and recordings
thereof, and applications therefor, including, without
limitation, applications, registrations and recordings in the
United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any
other country or any political subdivision thereof, all whether
now owned or hereafter acquired by Debtor, including, but not
limited to, those described in Schedule B annexed hereto and made
a part hereof, and (ii) all reissues, divisions, continuations,
continuations-in-part or extensions thereof and all licenses
thereof.
"Obligations" shall mean all indebtedness, obligations,
liabilities and agreements of any kind of Debtor to Secured
Party, including without limitation the Loan Agreement, now
existing or hereafter arising, direct or indirect (including
participations or any interest of Secured Party in obligations of
Debtor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint
or several, secured or unsecured, due or not, contractual or
tortious, liquidated or unliquidated, arising by operation of law
or otherwise, and all loan agreements, documents and instruments
evidencing any of the foregoing obligations or under which any of
the foregoing obligations may have been issued, created, assumed
or guaranteed, and all extensions, renewals, refundings,
replacements and modifications of the foregoing.
2. Debtor hereby represents, warrants, covenants and
agrees as follows:
(a) Debtor has the sole, full and clear title to
the Trademarks in the United States and all other countries
for the goods and services on which they are used by Debtor,
and the registrations thereof are valid and subsisting and
in full force and effect.
(b) Debtor will perform all acts and execute all
documents, including, without limitation, assignments for
security in form suitable for filing with the United States
Patent and Trademark Office and state and local governments
in the United States and in other countries, substantially
in the forms of Exhibits 1 and 2 hereof, respectively,
requested by the Secured Party at any time to evidence,
perfect, maintain, record and enforce the Secured Party's
interest in the Collateral or otherwise in furtherance of
the provisions of this Agreement, and Debtor hereby
authorizes the Secured Party to execute and file one or more
financing statements (and similar documents) or copies
thereof or of this Security Agreement with respect to the
Collateral signed only by the Secured Party.
(c) Except to the extent that the Secured Party,
upon prior written notice to Debtor, shall consent, Debtor
(either itself or through licensees) will continue to use
the Trademarks on all services and goods applicable to its
current line as reflected in its current catalogs, brochures
and price lists in order to maintain the Trademarks and
their registrations in full force free from any claim of
abandonment for nonuse and Debtor will not (and will not
permit any licensee thereof to) do any act or knowingly omit
to do any act whereby any Trademark or its registration may
become invalidated.
(d) Debtor has the sole, full and clear title to
each of the Patents shown on Schedule B hereto, subject to
the Assignment, and the same are valid and subsisting and in
full force and effect. None of the Patents has been
abandoned, disclaimed or dedicated in whole or in part, and,
except to the extent that the Secured Party, upon prior
written notice by Debtor, shall consent, Debtor will not do
any act, or omit to do any act, whereby the Patents may
become so abandoned, disclaimed or dedicated and shall
notify the Secured Party immediately if it knows of any
reason or has reason to know that any such Patent or
application may become so abandoned, disclaimed or
dedicated.
(e) Debtor will promptly pay the Secured Party
for any and all sums, costs, and expenses which the Secured
Party may pay or incur pursuant to the provisions of this
Agreement or in enforcing the Obligations, the Collateral or
the security interest granted hereunder, including, but not
limited to, all filing or recording fees, court costs,
collection charges, travel, and reasonable attorneys' fees,
all of which together with interest at the highest rate then
payable on the Obligations shall be part of the Obligations
and be payable on demand.
(f) In no event shall Debtor, either itself or
through any agent, employee, licensee or designee, file an
application for any Patent or Trademark registration with
the United States Patent and Trademark Office or any similar
office or agency in any state of the United States, or in
any other country or any political subdivision thereof,
unless it will promptly inform the Secured Party, and, upon
request of the Secured Party, execute and deliver any and
all assignments, agreements, instruments, documents and
papers as the Secured Party may request to evidence the
Secured Party's interest in such Patent or Trademark and the
goodwill and general intangibles of Debtor relating thereto
or represented thereby and Debtor hereby constitutes the
Secured Party its attorney-in-fact to execute and file all
such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power
being coupled with an interest is irrevocable until the
Obligations are paid in full.
(g) Debtor has the right and power to make the
assignment and to grant the security interest herein
granted; and the Collateral is not now, and at all times
will not be, subject to any liens, mortgages, assignments,
security interests or encumbrances of any nature whatsoever,
except for the Assignment, and except in favor of the
Secured Party and to the best knowledge of Debtor none of
the Collateral is subject to any claim.
(h) Except to the extent that the Secured Party,
upon prior written notice of Debtor, shall consent, Debtor
will not assign, sell, mortgage, lease, transfer, pledge,
hypothecate, grant a security interest in or lien upon,
encumber, grant an exclusive or non-exclusive license, or
otherwise dispose of any of the Collateral, and nothing in
this Agreement shall be deemed a consent by the Secured
Party to any such action except as expressly permitted
herein.
(i) As of the date hereof Debtor has no Patent or
Trademark registrations in, or the subject of pending
applications in, the United States Patent and Trademark
Office or any similar office or agency in any state of the
United States, or in any other country or any political
subdivision thereof other than those described in
Schedules A and B hereto.
(j) Debtor will take all necessary steps in any
proceeding before the United States Patent and Trademark
Office or any similar office or agency in any other country
or any political subdivision thereof, to maintain each
Patent and each application and registration of the
Trademarks and Patents, including, without limitation, if
applicable, paying of maintenance fees, applications for
reissues or extensions, filing of renewals, affidavits of
use, affidavits of incontestability and opposition,
interference and cancellation proceedings (except to the
extent that dedication, abandonment or invalidation is
permitted under paragraphs 2(c) and 2(d) hereof).
3. Upon the occurrence of an Event of Default (as
defined in the Loan Agreement) (whenever used herein, the term
"Event of Default" having such meaning), in addition to all other
rights and remedies of the Secured Party, whether under law, the
Loan Agreement or otherwise, all such rights and remedies being
cumulative, not exclusive and enforceable alternatively,
successively or concurrently, without (except as provided herein)
notice to, or consent by, Debtor, the Secured Party shall have
the following rights and remedies: (a) Debtor shall not make any
use of the Patents or the inventions to which they pertain or the
Trademarks or any mark similar thereto for any purpose; (b) the
Secured Party may, at any time and from time to time, upon ten
(10) days' prior notice to Debtor, license, whether on an
exclusive or nonexclusive basis, any of the Patents or
Trademarks, anywhere in the world for such term or terms, on such
conditions, and in such manner, as the Secured Party shall in its
sole discretion determine; (c) the Secured Party may (without
assuming any obligations or liability thereunder), at any time,
enforce (and shall have the exclusive right to enforce) against
any licensee or sublicensee all rights and remedies of Debtor in,
to and under any one or more license agreements with respect to
the Collateral, and take or refrain from taking any action under
any thereof, and Debtor hereby releases the Secured Party from,
and agrees to hold the Secured Party free and harmless from and
against any claims arising out of, any action taken or omitted to
be taken with respect to any such license agreement; (d) the
Secured Party may, at any time and from time to time, upon ten
(10) days' prior notice to Debtor, assign, sell, buy, or
otherwise dispose of, the Collateral or any of it, either with or
without special or other conditions or stipulations, and with
power also to execute assurances, and do all other acts and
things for completing the assignment, sale or disposition which
the Secured Party shall, in its sole discretion, deem appropriate
or proper; and (e) in addition to the foregoing, in order to
implement the assignment, sale or other disposal of any of the
Collateral pursuant to subparagraph 3(d) hereof, the Secured
Party may, at any time, pursuant to the authority granted in the
Power(s) of Attorney described in paragraph 4 hereof (such
authority becoming effective on the occurrence or continuation as
hereinabove provided of an Event of Default), execute and deliver
on behalf of Debtor, one or more instruments of assignment of the
Patents or Trademarks, in form suitable for filing, recording or
registration in any country. Debtor agrees to pay when due all
reasonable costs incurred in any such transfer of the Patents or
Trademarks, including any taxes, fees and reasonable attorneys'
fees, and all such costs shall be added to the Obligations. The
Secured Party may apply the proceeds actually received from any
such license, assignment, sale or other disposition to the
reasonable costs and expenses thereof, including, without
limitation, reasonable attorneys' fees and all legal, travel and
other expenses which may be incurred by the Secured Party, and
then to the Obligations, in such order as to principal or
interest as the Secured Party may desire; and Debtor shall remain
liable and will pay the Secured Party on demand any deficiency
remaining, together with interest thereon at a rate equal to the
highest rate then payable on the Obligations and the balance of
any expenses unpaid. Nothing herein contained shall be construed
as requiring the Secured Party to take any such action at any
time. In the event of any such license, assignment, sale or
other disposition of the Collateral, or any of it, after the
occurrence or continuation as hereinabove provided of an Event of
Default, Debtor shall supply its tooling, know-how and expertise
relating to the manufacture and sale of the products covered by
the Trademarks or Patents, and its customer lists and other
records relating to the Trademarks or Patents and to the
distribution of said products, to the Secured Party or its
designee.
4. Concurrently with the execution and delivery
hereof, Debtor is executing and delivering to the Secured Party,
in the form of Exhibit 3 hereto, _____________ originals of a
Power of Attorney, coupled with an interest, for the
implementation of the assignment, sale or other disposal of the
Trademarks and Patents pursuant to paragraphs 3(d) and (e) hereof
and Debtor hereby releases the Secured Party from any claims,
causes of action and demands at any time arising out of or with
respect to any actions taken or omitted to be taken by the
Secured Party, under the powers of attorney granted herein other
than actions taken or omitted to be taken through the gross
negligence or willful misconduct of the Secured Party.
5. No provision hereof shall be modified, altered or
limited except by a written instrument expressly referring to
this Agreement and executed by the party to be charged. The
execution and delivery of this Agreement has been authorized by
the Board of Directors of Debtor and by any necessary vote or
consent of stockholders thereof. This Agreement shall be binding
upon the successors, assigns or other legal representatives of
Debtor, and shall, together with the rights and remedies of the
Secured Party hereunder, inure to the benefit of the Secured
Party, its successors, assigns or other legal representatives.
This Agreement, the Obligations and the Collateral shall be
governed in all respects by the laws of the United States and the
laws of the State of Illinois. Debtor hereby submits to the
nonexclusive jurisdiction of the state courts of the State of
Illinois and the federal courts of the United States of America
located in such State in any action or proceeding arising under
this Security Agreement. If any term of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity of all
other terms hereof shall in no way be affected thereby.
6. Secured Party shall reassign without warranties
all of the Collateral to Debtor upon the repayment of the
Obligations and the termination of the Loan Agreement.
IN WITNESS WHEREOF, Debtor and the Secured Party have
caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
ATTEST: BRADLEY PHARMACEUTICALS, INC.
By:__________________________ By:_______________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
THE CIT GROUP/CREDIT FINANCE, INC.
By:_______________________
Name:
Title:
<PAGE>
SCHEDULE A TO SECURITY AGREEMENT
---------------------------------
TRADEMARKS
----------
BRADLEY PHARMACEUTICALS, INC.
Registered Trademarks (1)
Registration Description Date of State or
Number of Mark Registration Country
------------ ----------- ------------ -------
TRADEMARK APPLICATIONS
---------------------
Registration Description Date of State or
Number of Mark Registration Country
------------ ----------- ------------ -------
(1) All trademarks owned by Bradley Pharmaceuticals, Inc.
and registered in the United States, the states of the
United States, and/or foreign countries.
<PAGE>
SCHEDULE B TO SECURITY AGREEMENT
-------------------------------
PATENTS
-------
Patent Date Patent
Number Title of Patent Issued Country
------- --------------- ----------- -------
PATENT APPLICATIONS
------------------
Serial Title of Filing
Number Patent Date Country Inventor
------ -------- ------ ------- --------
<PAGE>
Exhibit 1 to
Security Agreement
ASSIGNMENT FOR SECURITY
----------------------
(PATENTS)
WHEREAS, Bradley Pharmaceuticals, Inc., a New Jersey
corporation (herein referred to as "Assignor"), owns the letters
patent, and/or applications for letters patent, of the United
States, more particularly described on Schedule 1-A annexed
hereto as part hereof (the "Patents");
WHEREAS, Assignor is obligated to The CIT Group/ Credit
Finance, Inc., a_____________________ corporation (herein
referred to as "Assignee"), and has entered into an Assignment,
Security Agreement and Mortgage-Trademarks and Patents dated the
date hereof (the "Agreement") in favor of Assignee; and
WHEREAS, pursuant to the Agreement, Assignor has
assigned to Assignee, and granted to Assignee a security interest
in, and mortgage on, all right, title and interest of Assignor in
and to the Patents, and all proceeds thereof, including, without
limitation, any and all causes of action which may exist by
reason of infringement thereof for the full term of the Patents,
to secure the prompt payment, performance and observance of the
Obligations, as defined in the Agreement;
NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged, Assignor does hereby
further assign unto Assignee and grant to Assignee a security
interest in, and mortgage on, the Patents to secure the prompt
payment, performance and observance of the Obligations.
Assignor does hereby further acknowledge and affirm
that the rights and remedies of Assignee with respect to the
assignment of, security interest in and mortgage on the Patents
made and granted hereby are more fully set forth in the
Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, Assignor has caused this Assignment
to be duly executed by its officer thereunto duly authorized as
of the ____ day of ___________________, 1997.
ATTEST: BRADLEY PHARMACEUTICALS, INC.,
a New Jersey corporation
By:__________________________ By:_______________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
<PAGE>
STATE OF NEW JERSEY )
) ss.
COUNTY OF __________ )
On this _____ day of ____________________, 1997, before
me personally appeared _________________________ and
__________________________, to me known, who, being by me duly
sworn, did depose and say that they are the _________________
and ____________________________ of Bradley Pharmaceuticals,
Inc., the corporation described in and which executed the
foregoing instrument; that they know the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was affixed by order of the Board of
Directors of said corporation, and that they signed their names
thereto by like order.
_______________________________
Notary Public
My commission expires:
_______________________________
<PAGE>
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
-----------------------------------------
PATENTS
-------
Patent Date Patent
Number Title of Patent Issued Country
------ --------------- ----------- -------
PATENT APPLICATIONS
-----------------
Serial Title of Filing
Number Patent Date Country Inventor
------ -------- ------ ------- --------
<PAGE>
Exhibit 2 to
Security Agreement
ASSIGNMENT FOR SECURITY
---------------------
(TRADEMARKS)
WHEREAS, Bradley Pharmaceuticals, Inc., a New Jersey
corporation (herein referred to as "Assignor"), has adopted, used
and is using the trademarks listed on the annexed Schedule 2-A,
which trademarks are registered in the United States Patent and
Trademark Office (the "Trademarks");
WHEREAS, Assignor is obligated to The CIT Group/Credit
Finance, Inc., a Delaware corporation (herein referred to as
"Assignee"), and has entered into an Assignment, Security
Agreement and Mortgage-Trademarks and Patents (the "Agreement")
in favor of Assignee; and
WHEREAS, pursuant to the Agreement, Assignor has
assigned to Assignee and granted to Assignee a security interest
in, and mortgage on, all right, title and interest of Assignor in
and to the Trademarks, together with the goodwill of the business
symbolized by the Trademarks and all proceeds thereof, including,
without limitation, any and all causes of action which may exist
by reason of infringement thereof, to secure the payment,
performance and observance of the Obligations, as defined in the
Agreement;
NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged, Assignor does hereby
further assign unto Assignee and grant to Assignee a security
interest in, and mortgage on, the Trademarks to secure the prompt
payment, performance and observance of the Obligations.
Assignor does hereby further acknowledge and affirm
that the rights and remedies of Assignee with respect to the
assignment of, security interest in and mortgage on the
Trademarks made and granted hereby are more fully set forth in
the Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, Assignor has caused this Assignment
to be duly executed by its officer thereunto duly authorized as
of the ______ day of_______________, 1997.
ATTEST: BRADLEY PHARMACEUTICALS, INC.,
a New Jersey corporation
By:__________________________ By:_______________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
<PAGE>
STATE OF NEW JERSEY )
) ss.
COUNTY OF _________ )
On this ____ day of __________________, 1997, before me
personally appeared __________________________________ and
________________________, to me known, who, being by me duly
sworn, did depose and say that they are the _______________ and
_________________________ of Bradley Pharmaceuticals, Inc., the
corporation described in and which executed the foregoing
instrument; that they know the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it
was affixed by order of the Board of Directors of said
corporation, and that they signed their names thereto by like
order.
_______________________________
Notary Public
My commission expires:
_______________________________
<PAGE>
SCHEDULE 2-A TO ASSIGNMENT FOR SECURITY
--------------------------------------
TRADEMARK
----------
BRADLEY PHARMACEUTICALS, INC.
Registered Trademarks (1)
Registration Description Date of State or
Number of Mark Registration Country
------------ ----------- ------------ --------
TRADEMARK APPLICATIONS
---------------------
Application Description Date of State or
Number of Mark Registration Country
----------- ----------- ----------- --------
(1) All trademarks owned by Bradley Pharmaceuticals, Inc. and
registered in the United States, the states of the United
States, and/or foreign countries.
<PAGE>
Exhibit 3 to
Security Agreement
SPECIAL POWER OF ATTORNEY COUPLED WITH AN INTEREST
---------------------------------------------------
STATE OF NEW JERSEY )
) ss.
COUNTY OF ________ )
KNOW ALL MEN BY THESE PRESENTS, THAT Bradley
Pharmaceuticals, Inc., a New Jersey corporation with its
principal office at 383 Route 467 West, Fairfield, New Jersey
07004, (hereinafter called "Assignor") hereby appoints and
constitutes The CIT Group/Credit Finance, Inc., a Delaware
corporation (hereinafter called "Assignee"), its true and lawful
attorney, with full power of substitution, and with full power
and authority to perform the following acts on behalf of
Assignor:
1. For the purpose of assigning, selling or otherwise
disposing of all right, title and interest of Assignor in and to
any letters patent of the United States or any other country, and
all pending applications therefor, and all reissues, divisions,
continuations, continuations-in-part and extensions thereof, and
for the purpose of the filing and prosecution of, or
accomplishing any other formality with respect to, the foregoing,
to execute and deliver any and all agreements, documents,
instruments of assignment or other papers necessary or advisable
to effect such purpose;
2. For the purpose of assigning, selling or otherwise
disposing of all right, title and interest of Assignor in and to
any trademarks, trade names, trade styles and service marks, and
all registrations, recordings and renewals thereof, and all
pending applications therefor, and for the purpose of the
recording, registering, filing and prosecution of, or
accomplishing any other formality with respect to, the foregoing,
to execute and deliver any and all agreements, documents,
instruments of assignment or other papers necessary or advisable
to effect such purpose; and
3. To execute any and all documents, statements,
certificates or other papers necessary or advisable in order to
obtain the purposes described above as Assignee may in its sole
discretion determine.
This power of attorney is made pursuant to an Assignment,
Security Agreement and Mortgage Trademarks and Patents, dated the
date hereof, between Assignor and Assignee and takes effect
solely for the purposes of paragraphs 3(d) and (e) thereof and is
subject to the conditions thereof and may not be revoked until
the payment in full of all "Obligations" as defined in such
Assignment, Security Agreement and Mortgage.
Dated: _____________________, 1997.
ATTEST: BRADLEY PHARMACEUTICALS, INC.,
a New Jersey corporation
By:___________________________ By:_______________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
<PAGE>
STATE OF NEW JERSEY )
) ss.
COUNTY OF __________ )
On this ____ day of ______________, 19__, before me
personally appeared _____________________________________ and
_________________________, to me known, who, being by me duly
sworn, did depose and say that they are the ________________ and
___________________ of Bradley Pharmaceuticals, Inc., the
corporation described in and which executed the foregoing
instrument; that they know the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it
was affixed by order of the Board of Directors of said
corporation, and that they signed their names thereto by like
order.
_______________________________
Notary Public
My commission expires:
_______________________________
ASSIGNMENT, SECURITY AGREEMENT
AND MORTGAGE TRADEMARKS
------------------------
THIS AGREEMENT is made this _____ day of ________,
1997, between DOAK DERMATOLOGICS, INC., a ____________________
corporation ("Debtor") having an office at 67 Sylvester Street,
Westbury, New York, and The CIT Group/Credit Finance, Inc., a
Delaware corporation (the "Secured Party"), having an office at
10 South LaSalle Street, Chicago, Illinois 60603.
WHEREAS, Debtor has adopted the terms and designs
described in Schedule A annexed hereto and made a part hereof;
WHEREAS, as a condition to the Secured Party making any
loans or advances to Debtor, Bradley Pharmaceuticals, Inc.,
Bradley Pharmaceuticals (Canada), Inc. and Bradley
Pharmaceuticals Overseas, Inc. (collectively "Borrowers")
pursuant to a Loan and Security Agreement dated as of the date
hereof (the "Loan Agreement") between Borrowers and the Secured
Party, the Secured Party has required the execution and delivery
of this Agreement by Debtor;
NOW, THEREFORE, IT IS AGREED that, for and in
consideration of the loans and advances to be made in the
discretion of Secured Party under the Loan Agreement, and other
good and valuable consideration, the receipt of which is hereby
acknowledged, and as collateral security for the full and prompt
payment and performance of all Obligations, as hereinafter
defined, Debtor does hereby mortgage to and pledge with the
Secured Party, and grant to the Secured Party a security interest
in, and all of its right, title and interest in and to, and
assigns to Secured Party (i) each of the Trademarks (as
hereinafter defined), the goodwill of the business symbolized by
each of the Trademarks, all customer lists and other records of
Debtor relating to the distribution of products bearing the
Trademarks and each of the registrations described in Schedule A,
and any formulas of Debtor used or usable in connection with the
Trademarks; and (ii) any and all proceeds of the foregoing,
including, without limitation, any claims by Debtor against third
parties for past, present and future infringement of Trademarks
(collectively, the "Collateral").
1. Terms defined in the Loan Agreement and not
otherwise defined herein shall have the meaning set forth in the
Loan Agreement. As used in this Agreement, unless the context
otherwise requires:
"Trademarks" shall mean (i) all trademarks, trade
names, trade styles, service marks, prints and labels on which
said trademarks, trade names, trade styles and service marks have
appeared or appear, designs and general intangibles of like
nature, now existing or hereafter adopted or acquired, all right,
title and interest therein and thereto acquired under common law
or statute, and whether by use or registration, and all
registrations and recordings thereof, and applications therefor,
including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in
any similar office or agency of the United States, any State
thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by Debtor,
including, but not limited to, those described in Schedule A
annexed hereto and made a part hereof, and (ii) all reissues,
amendments, extensions or renewals thereof and all licenses
thereof.
"Obligations" shall mean all indebtedness, obligations,
liabilities and agreements of any kind of Debtor to secured
Party, including, without limitation, the Loan Agreement, now
existing or hereafter arising, direct or indirect (including
participations or any interest of Secured party in obligations of
Debtor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint
or several, secured or unsecured, due or not, contractual or
tortious, liquidated or unliquidated, arising by operation of law
or otherwise, and all loan agreements, documents and instruments
evidencing any of the foregoing obligations or under which any of
the foregoing obligations may have been issued, created, assumed
or guaranteed, and all extensions, renewals, refundings,
replacements and modifications of the foregoing.
2. Debtor hereby represents, warrants, covenants and
agrees as follows:
(a) Debtor has the sole, full and clear title to
the Trademarks in the United States and all other
countries for the goods and services on which they are
used by Debtor, and the registrations thereof are valid
and subsisting and in full force and effect.
(b) Debtor will perform all acts and execute all
documents, including, without limitation, assignments
for security in form suitable for filing with the
United States Patent and Trademark Office and state and
local governments in the United States and in other
countries, substantially in the form of Exhibit 1
hereof, requested by the Secured Party at any time to
evidence, perfect, maintain, record and enforce the
Secured Party's interest in the Collateral or otherwise
in furtherance of the provisions of this Agreement, and
Debtor hereby authorizes the Secured Party to execute
and file one or more financing statements (and similar
documents) or copies thereof or of this Security
Agreement with respect to the Collateral signed only by
the Secured Party.
(c) Except to the extent that the Secured Party,
upon prior written notice of Debtor, shall consent,
Debtor (either itself or through licensees) will
continue to use the Trademarks on all services and
goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in
order to maintain the Trademarks and their
registrations in full force free from any claim of
abandonment for nonuse and Debtor will not (and will
not permit any licensee thereof to) do any act or
knowingly omit to do any act whereby any Trademark or
its registration may become invalidated.
(d) Debtor will promptly pay the Secured Party
for any and all sums, costs, and expenses which the
Secured Party may pay or incur pursuant to the
provisions of this Agreement or in enforcing the
Obligations, the Collateral or the security interest
granted hereunder, including, but not limited to, all
filing or recording fees, court costs, collection
charges, travel, and reasonable attorneys' fees, all of
which together with interest at the highest rate then
payable on the Obligations shall be part of the
Obligations and be payable on demand.
(e) In no event shall Debtor, either itself or
through any agent, employee, licensee or designee, file
an application for any Trademark registration with the
United States Patent and Trademark Office or any
similar office or agency in any state of the United
States or in any other country or any political
subdivision thereof, unless it will promptly inform the
Secured Party, and, upon request of the Secured Party,
execute and deliver any and all assignments,
agreements, instruments, documents and papers as the
Secured Party may request to evidence the Secured
Party's interest in such Trademark and the goodwill and
general intangibles of Debtor relating thereto or
represented thereby and Debtor hereby constitutes the
Secured Party its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all acts
of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is
irrevocable until the Obligations are paid in full.
(f) Debtor has the right and power to make the
assignment and to grant the security interest herein
granted, and the Collateral is not now, and at all
times will not be, subject to any liens, mortgages,
assignments, security interests or encumbrances of any
nature whatsoever, except for the Assignment, and
except in favor of the Secured Party and to the best
knowledge of Debtor, none of the Collateral is subject
to any claim.
(g) Except to the extent that the Secured Party,
upon prior written notice to Debtor, shall consent,
Debtor will not assign, sell, mortgage, lease,
transfer, pledge, hypothecate, grant a security
interest in or lien upon, encumber, grant an exclusive
or non-exclusive license, or otherwise dispose of any
of the Collateral, and nothing in this Agreement shall
be deemed a consent by the Secured Party to any such
action except as expressly permitted herein.
(h) As of the date hereof Debtor has no Trademark
registrations in, or the subject of pending
applications in, the United States Patent and Trademark
Office or any similar office or agency in any state of
the United States, or in any other country or any
political subdivision thereof other than those
described in Schedule A hereto.
(i) Debtor will take all necessary steps in any
proceeding before the United States Patent and
Trademark Office or any similar office or agency in any
other country or any political subdivision thereof, to
maintain each application and registration of the
Trademarks, including, without limitation, if
applicable, paying of maintenance fees, applications
for reissues or extensions, filing of renewals,
affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings
(except to the extent that dedication, abandonment or
invalidation is permitted under paragraph 2(c) hereof).
3. Upon the occurrence of an Event of Default (as
defined in the Loan Agreement) (whenever used herein, the term
"Event of Default" having such meaning), in addition to all other
rights and remedies of the Secured Party, whether under law, the
Loan Agreement or otherwise, all such rights and remedies being
cumulative, not exclusive and enforceable alternatively,
successively or concurrently, without (except as provided herein)
notice to, or consent by, Debtor, the Secured Party shall have
the following rights and remedies: (a) Debtor shall not make any
use of the Trademarks or any mark similar thereto for any
purpose; (b) the Secured Party may, at any time and from time to
time, upon (10) days' prior notice to Debtor, license, whether on
an exclusive or nonexclusive basis, any of the Trademarks,
anywhere in the world for such term or terms, on such conditions,
and in such manner, as the Secured Party shall in its sole
discretion determine; (c) the Secured Party may (without assuming
any obligations or liability thereunder), at any time, enforce
(and shall have the exclusive right to enforce) against any
licensee or sublicensee all rights and remedies of Debtor in, to
and under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any
thereof, and Debtor hereby releases the Secured Party from, and
agrees to hold the Secured Party free and harmless from and
against any claims arising out of, any action taken or omitted to
be taken with respect to any such license agreement; (d) the
Secured Party may, at any time and from time to time, upon ten
(10) days' prior notice to Debtor, assign, sell, buy, or
otherwise dispose of, the Collateral or any of it, either with or
without special or other conditions or stipulations, and with
power also to execute assurances, and do all other acts and
things for completing the assignment, sale or disposition which
the Secured Party shall, in its sole discretion, deem appropriate
or proper; and (e) in addition to the foregoing, in order to
implement the assignment, sale or other disposal of any of the
Collateral pursuant to subparagraph 3(d) hereof, the Secured
Party may, at any time, pursuant to the authority granted in the
Power(s) of Attorney described in paragraph 4 hereof (such
authority becoming effective on the occurrence or continuation as
hereinabove provided of an Event of Default), execute and deliver
on behalf of Debtor, one or more instruments of assignment of the
Trademarks, in form suitable for filing, recording or
registration in any country. Debtor agrees to pay when due all
reasonable costs incurred in any such transfer of the Trademarks,
including any taxes, fees and reasonable attorneys' fees, and all
such costs shall be added to the Obligations. The Secured Party
may apply the proceeds actually received from any such license,
assignment, sale or other disposition to the reasonable costs and
expenses thereof, including, without limitation, reasonable
attorneys' fees and all legal, travel and other expenses which
may be incurred by the Secured Party, and then to the
Obligations, in such order as to principal or interest as the
Secured Party may desire, and Debtor shall remain liable and will
pay the Secured Party on demand any deficiency remaining,
together with interest thereon at a rate equal to the highest
rate then payable on the Obligations and the balance of any
expenses unpaid. Nothing herein contained shall be construed as
requiring the Secured Party to take any such action at any time.
In the event of any such license, assignment, sale or other
disposition of the Collateral, or any of it, after the occurrence
or continuation as hereinabove provided of an Event of Default,
Debtor shall supply its tooling, know-how and expertise relating
to the manufacture and sale of the products covered by the
Trademarks, and its customer lists and other records relating to
the Trademarks and to the distribution of said products, to the
Secured Party or its designee.
4. Concurrently with the execution and delivery
hereof, Debtor is executing and delivering to the Secured Party,
in the form of Exhibit 2 hereto, _____ originals of a Power of
Attorney, coupled with an interest, for the implementation of the
assignment, sale or other disposal of the Trademarks pursuant to
paragraphs 3(d) and (e) hereof and Debtor hereby releases the
Secured Party from any claims, causes of action and demands at
any time arising out of or with respect to any actions taken or
omitted to be taken by the Secured Party, under the powers of
attorney granted herein other than actions taken or omitted to be
taken through the gross negligence or willful misconduct of the
Secured Party.
5. No provision hereof shall be modified, altered or
limited except by a written instrument expressly referring to
this Agreement and executed by the party to be charged. The
execution and delivery of this Agreement has been authorized by
the Board of Directors of Debtor and by any necessary vote or
consent of stockholders thereof. This Agreement shall be binding
upon the successors, assigns or other legal representatives of
Debtor, and shall, together with the rights and remedies of the
Secured Party hereunder, inure to the benefit of the Secured
Party, its successors, assigns or other legal representatives.
This Agreement, the Obligations and the Collateral shall be
governed in all respects by the laws of the United States and the
laws of the State of Illinois. Debtor hereby submits to the
nonexclusive jurisdiction of the state courts of the State of
Illinois and the federal courts of the United States of America
located in such State in any action or proceeding arising under
this Security Agreement. If any term of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity of all
other terms hereof shall in no way be affected thereby.
6. Secured Party shall reassign without warranties
all of the Collateral to Debtor upon the repayment of the
Obligations and the termination of the Loan Agreement.
IN WITNESS WHEREOF, Debtor and the Secured Party have
caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
ATTEST: DOAK DERMATOLOGICS, INC.,
By:______________________ By:______________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
THE CIT GROUP/CREDIT FINANCE, INC.
By:______________________
Name:
Title:
<PAGE>
SCHEDULE A TO SECURITY AGREEMENT
-------------------------------
TRADEMARKS
----------
Doak Dermatologics, Inc.
Registered Trademarks (1)
Registration Description Date of State or
Number of Mark Registration Country
------------ ----------- ------------ --------
TRADEMARK APPLICATIONS
----------------------
Application Description Date of State or
Number of Mark Registration Country
----------- ----------- ------------ --------
(1) All trademarks owned by Doak Dermatologics, Inc. and
registered in the United States, the states of the United
States, and/or foreign countries.
<PAGE>
Exhibit 1 to
Security Agreement
ASSIGNMENT FOR SECURITY
-----------------------
(TRADEMARKS)
WHEREAS, Doak Dermatologics, Inc., a __________
corporation (herein referred to as "Assignor"), has adopted, used
and is using the trademarks listed on the annexed Schedule 1-A,
which trademarks are registered in the United States Patent and
Trademark Office (the "Trademarks");
WHEREAS, Assignor is obligated to The CIT Group/Credit
Finance, Inc., a Delaware corporation (herein referred to as
"Assignee"), and has entered into an Assignment, Security
Agreement and Mortgage-Trademarks (the "Agreement") in favor of
Assignee; and
WHEREAS, pursuant to the Agreement, Assignor has
assigned to Assignee and granted to Assignee a security interest
in, and mortgage on, all right, title and interest of Assignor in
and to the Trademarks, together with the goodwill of the business
symbolized by the Trademarks, and all proceeds thereof,
including, without limitation, any and all causes of action which
may exist by reason of infringement thereof, to secure the
payment, performance and observance of the Obligations, as
defined in the Agreement;
NOW, THEREFORE, for good and valuable consideration,
receipt of which is hereby acknowledged, Assignor does hereby
further assign unto Assignee and grant to Assignee a security
interest in, and mortgage on, the Trademarks to secure the prompt
payment, performance and observance of the Obligations.
Assignor does hereby further acknowledge and affirm
that the rights and remedies of Assignee with respect to the
assignment of, security interest in and mortgage on the
Trademarks made and granted hereby are more fully set forth in
the Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, Assignor has caused this Assignment
to be duly executed by its officer thereunto duly authorized as
of the _____ day of _________________, 1997.
ATTEST: DOAK DERMATOLOGICS, INC., a _______
corporation
By:_____________________ By:_____________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
<PAGE>
STATE OF __________)
) ss.
COUNTY OF _________)
On this _____ day of ____________, 19__, before me
personally appeared __________________ and _________________, to
me known, who, being by me duly sworn, did depose and say that
they are the __________________ and __________________ of Doak
Derematologics, Inc., the corporation described in and which
executed the foregoing instrument, that they know the seal of
said corporation, that the seal affixed to said instrument is
such corporate seal, that it was affixed by order of the Board of
Directors of said corporation, and that they signed their names
thereto by like order.
___________________________________
Notary Public
My commission expires:
___________________________________
<PAGE>
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
--------------------------------------
TRADEMARKS
----------
Doak Dermatologics, Inc.
Registered Trademarks (1)
Registration Description Date of State or
Number of Mark Registration Country
----------- ----------- ------------ --------
TRADEMARK APPLICATIONS
----------------------
Application Description Date of State or
Number of Mark Registration Country
----------- ----------- ------------ --------
(1) All trademarks owned by Doak Dermatologics, Inc. and
registered in the United States, the states of the United
States, and/or foreign countries.
<PAGE>
Exhibit 2 to
Security Agreement
SPECIAL POWER OF ATTORNEY COUPLED WITH AN INTEREST
-------------------------------------------------
STATE OF __________ )
) ss.
COUNTY OF _________ )
KNOW ALL MEN BY THESE PRESENTS, THAT Doak
Dermatologics, Inc. a ________________ corporation with its
principal office at 67 Sylvester Street, Westbury, New York
(hereinafter called "Assignor") hereby appoints and constitutes
The CIT Group/Credit Finance, Inc., a Delaware corporation
(hereinafter called "Assignee"), its true and lawful attorney,
with full power of substitution, and with full power and
authority to perform the following acts on behalf of Assignor:
1. For the purpose of assigning, selling or otherwise
disposing of all right, title and interest of Assignor in
and to any trademarks, trade names, trade styles and service
marks, and all registrations, recordings and renewals
thereof, and all pending applications therefor, and for the
purpose of the recording, registering, filing and
prosecution of, or accomplishing any other formality with
respect to, the foregoing, to execute and deliver any and
all agreements, documents, instruments of assignment or
other papers necessary or advisable to effect such purpose;
and
2. To execute any and all documents, statements,
certificates or other papers necessary or advisable in order
to obtain the purposes described above as Assignee may in
its sole discretion determine.
This power of attorney is made pursuant to an
Assignment, Security Agreement and Mortgage Trademarks, dated the
date hereof, between Assignor and Assignee and takes effect
solely for the purposes of paragraphs 3(d) and (e) thereof and is
subject to the conditions thereof and may not be revoked until
the payment in full of all "Obligations" as defined in such
Assignment, Security Agreement and Mortgage.
Dated: _______________, 1997.
ATTEST: DOAK DERMATOLOGICS, INC. a
__________ corporation
By:_____________________ By:_____________________
Name: Name:
Title: Title:
(CORPORATE SEAL)
<PAGE>
STATE OF __________ )
)ss.
COUNTY OF _________ )
On this _____ day of ____________, 1997, before me
personally appeared __________________ and _________________, to
me known, who, being by me duly sworn, did depose and say that
they are the __________________ and __________________ of Doak
Dermatologics, Inc., the corporation described in and which
executed the foregoing instrument, that they know the seal of
said corporation, that the seal affixed to said instrument is
such corporate seal, that it was affixed by order of the Board of
Directors of said corporation, and that they signed their names
thereto by like order.
___________________________________
Notary Public
My commission expires:
___________________________________
GUARANTY
September 19, 1997
The CIT Group/Credit Finance, Inc.
10 South LaSalle Street
Chicago, Illinois 60603
Re: Bradley Pharmaceuticals, Inc., Doak Dermatologics,
Inc., Bradley Pharmaceuticals (Canada), Inc. and
Bradley Pharmaceuticals Overseas, Ltd. (individually
or collectively, "Borrower")
-------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the financing arrangements between The
CIT Group/Credit Finance, Inc. ("Lender") and Borrower, pursuant
to which Lender may extend loans, advances and other financial
accommodations to Borrower as set forth in the Loan and Security
Agreement between Borrower and Lender and various other
agreements, documents and instruments now or at any time executed
and/or delivered in connection therewith or otherwise related
thereto, including, but not limited to, this Guaranty (all of the
foregoing, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced,
being collectively referred to herein as the "Financing
Agreements"). Capitalized terms used in this Guaranty without
definition shall have the respective meanings ascribed to them in
the Financing Agreements.
Due to the close business and financial relationships
between Borrower and the undersigned ("Guarantor"), in
consideration of the benefits which will accrue
to Guarantor, and as an inducement for and in consideration of
Lender at any time providing or extending loans, advances and
other financial accommodations to Borrower, pursuant to the
Financing Agreement, Guarantor hereby, irrevocably and
unconditionally, (a) guarantees and agrees to be liable for the
prompt indefeasible and full payment and performance of all
revolving loans, term loans, letters of credit, bankers'
acceptances, merchandise purchase guaranties or other guaranties
or indemnities for Borrower's account and all other obligations,
liabilities and indebtedness of every kind, nature or description
owing by Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees and expenses, arising under
any of the Financing Agreements, whether now existing or
hereafter arising, whether arising during or after the initial or
any renewal term of the Financing Agreements or after the
commencement of any case with respect to Borrower under the
United States Bankruptcy Code or any similar statute, whether
direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended, and whether
arising directly or howsoever acquired by Lender including from
any other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity,
participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or
otherwise and (b) agrees to pay to Lender on demand the amount of
all expenses (including, without limitation, reasonable
attorneys' fees and legal expenses) incurred by Lender in
connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense
of Borrower's obligations, liabilities and indebtedness as
aforesaid to Lender, Lender's rights in any collateral or under
this Guaranty and all other Financing Agreements or in any way
involving claims by or against Lender directly or indirectly
arising out of or related to the relationship between Borrower
and Lender, Guarantor and Lender, or any other Obligor (as
hereinafter defined) and Lender, whether such expenses are
incurred before, during or after the initial or any renewal term
of the Financing Agreements or after the commencement of any case
with respect to Borrower, Guarantor or any other Obligor under
the United States Bankruptcy Code or any similar statute (all of
which being collectively referred to herein as the
"Obligations").
Notwithstanding anything contained in this Guaranty to the
contrary, the liability of Guarantor hereunder shall, in no
event, exceed the sum of Two Hundred Fifty Thousand and No/100ths
Dollars ($250,000.00) plus
----
(i) interest thereon from and after the date of demand for
payment hereunder at the per annum rate of two and one-quarter
per cent (2 1/4%) per annum plus Prime Rate (as defined in the
Financing Agreements) and (ii) Guarantor Enforcement Expenses
incurred by Lender to enforce this Guaranty against the Guarantor
(all of which are being collectively referred to herein as the
"Guaranteed Obligations"). It is expressly understood that the
Obligations of Borrower under the Financing Agreements may at any
time or from time to time be an amount greater than the
Guaranteed Obligations without affecting the validity of this
Guaranty. It is specifically understood and agreed, moreover,
that if and to the extent the Obligations at any time or from
time to time exceed the Guaranteed Obligations, any payments made
upon the Obligations shall be first considered payments upon the
amount of the Obligations to Lender which exceed the amount
guaranteed and shall affect neither the liability of the
Guarantor to Lender for the amount guaranteed hereunder, nor the
validity of this Guaranty. Furthermore, Lender agrees to cancel
and terminate this Guaranty at such a time as each of the
following events shall have occurred and be continuing:
(a) Borrower shall have had Net Availability (as defined in
the Financing Agreements) of Three Hundred Thousand
Dollars ($300,000.00) or more for three continuous
months;
(b) None of Borrowers' trade payables is more than ninety
(90) days past due, except for trade payables Borrower
is disputing in good faith and proceeding diligently to
resolve; and
(c) Lender shall have received Borrower's audited year end
financial statements for the immediately preceding
fiscal year which display a pre-tax income determined
according to generally accepted accounting principles
consistently applied of at least One Million Dollars
($1,000,000.00), excluding, however, from such
determination of pre-tax income any unusual or
extraordinary items.
Guarantor further agrees to pay all costs and expenses
("Guarantor Enforcement Expenses") including, without limitation,
all court costs and reasonable attorneys' and paralegals' fees,
and expenses paid or incurred by Lender in endeavoring to collect
all or any portion of the Guaranteed Obligations from, or in
prosecuting any action against Guarantor.
Notice of acceptance of this Guaranty, the making of loans,
advances and extensions of credit or other financial
accommodations to, and the incurring of any expenses by or in
respect of, Borrower, and presentment, demand, protest, notice of
protest, notice of nonpayment or default and all other notices to
which Borrower or Guarantor are or may be entitled are hereby
waived. Guarantor also waives notice of, and hereby consents to,
(i) any amendment, modification, supplement, renewal, restatement
or extensions of time of payment of or increase or decrease in
the amount of any of the Obligations or to the Financing
Agreements and any collateral, and the guarantee made herein
shall apply to the Obligations as so amended, modified,
supplemented, renewed, restated or extended, increased or
decreased, (ii) the taking, exchange, surrender and releasing of
collateral or guarantees now or at any time held by or available
to Lender for the obligations of Borrower or any other party at
any time liable for or in respect of the Guaranteed Obligations
(individually and collectively, the "Obligors"), (iii) the
exercise of, or refraining from the exercise of any rights
against Borrower, Guarantor or any other Obligor or any
collateral, and (iv) the settlement, compromise or release of, or
the waiver of any default with respect to, any Obligations.
Guarantor agrees that the amount of the Guaranteed Obligations
shall not be diminished and the liability of Guarantor hereunder
shall not be otherwise impaired or affected by any of the
foregoing.
This Guaranty is a guaranty of payment and not of
collection. Guarantor agrees that Lender need not attempt to
collect any Obligations from Borrower or any other Obligor or to
realize upon any collateral, but except as otherwise provided
herein, may require Guarantor to make immediate payment of the
Guaranteed Obligations to Lender when due or at any time
thereafter. Lender may apply any amounts received in respect of
the Obligations to any of the Obligations, in whole or in part
(including reasonable attorneys' fees and legal expenses incurred
by Lender with respect thereto or otherwise chargeable to
Borrower or Guarantor) and in such order as Lender may elect,
whether or not then due.
No invalidity, irregularity or unenforceability of all or
any part of the Obligations shall affect, impair or be a defense
to this Guaranty, nor shall any other circumstance which might
otherwise constitute a defense available to, or legal or
equitable discharge of Borrower in respect of any of the
Obligations in respect of this Guaranty, affect, impair or be a
defense to this Guaranty. Without limitation of the foregoing,
the liability of Guarantor hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender to
perfect or continue perfection of any lien or security interest
in any collateral for the Obligations or any delay by Lender in
perfecting any such lien or security interest. As to interest,
fees and expenses, whether arising before or after the
commencement of any case with respect to Borrower under the
United States Bankruptcy Code or any similar statue, Guarantor
shall be liable therefor, even if Borrower's liability for such
amounts does not, or ceases to, exist by operation of law.
This Guaranty is absolute, unconditional and continuing.
Payment by Guarantor shall be made to Lender at its office from
time to time on demand as Guaranteed Obligations become due. One
or more successive or concurrent actions may be brought hereon
against Guarantor either in the same action in which Borrower or
any other Obligors are sued or in separate actions.
Payment of all amounts now or hereafter owed to Guarantor by
Borrower or any other Obligor is hereby subordinated in right of
payment to the indefeasible payment in full to Lender of the
Obligations and is hereby assigned to Lender as security
therefor. Until the Obligations shall have been irrevocably
paid in full, Guarantor shall have no right of subrogation and
Guarantor hereby waives any right to enforce any remedy which
Lender now has or may hereafter have against the Borrower, any
endorser or any other guarantor of all of any part of the
Obligations, and Guarantor hereby waives any benefit of, and any
right to participate in, any security or collateral given to
Lender to secure payment of the Obligations or any other
liability of Borrower to Lender. If any amount is paid to
Guarantor on account of such right of subrogation while any of
the Obligations remain unpaid, such amount will be paid forthwith
by Guarantor to Lender to be credited against the Obligations,
whether matured or unmatured. Guarantor further agrees that any
and all claims of the Guarantor against Borrower, any endorser or
any other guarantor of all or any part of the Obligations, or
against any of their respective properties, whether arising by
reason of any payment by Guarantor to Lender pursuant to the
provisions hereof, or otherwise, shall be subordinate and subject
in right of payment to the prior payment, in full, of all
principal and interest, all reasonable costs of collection
(including attorneys' and paralegals' fees) and any other
liabilities or obligations owing to Lender by Borrower which may
arise either with respect to or on any note, instrument,
document, item, agreement or other writing heretofore, now or
hereafter delivered to Lender.
Guarantor waives (i) all defenses based on suretyship or
impairment of collateral, and (ii) any defenses which Borrower
may assert with respect to the Obligations, including but not
limited to, failure of consideration, breach of warranty, fraud,
statute of frauds, bankruptcy, lack of legal capacity, statute of
limitations, lender liability, accord and satisfaction, and
usury.
All sums at any time owed by Lender to Guarantor or to the
credit of Guarantor and any property of Guarantor on which Lender
at any time has a lien or security interest or of which Lender at
any time has possession, shall secure payment and performance of
all Guaranteed Obligations and all other obligations of Guarantor
to Lender however arising.
In case proceedings being instituted by or against Borrower
or Guarantor or any other Obligor, in bankruptcy or insolvency,
or for reorganization, arrangement, receivership, or the like, or
if Borrower or Guarantor or any other Obligor calls a meeting of
creditors or makes any assignment for the benefit of creditors,
or upon the occurrence of any event which constitutes a default
or event of default under the Financing Agreements, the liability
of Guarantor for the entire Guaranteed Obligations shall mature,
even if the liability of Borrower or any other Obligor therefor
does not.
Guarantor shall continue to be liable hereunder until one of
Lender's officers actually receives a written termination notice
by certified mail; but the giving of such notice shall not
relieve Guarantor from liability for any Guaranteed Obligations
incurred before termination or for posttermination collection
expenses and interest pertaining to any Guaranteed Obligations
arising before termination.
Guarantor agrees that this Guaranty shall remain in full
force and effect or be reinstated, as the case may be, if at any
time payment of any of the Guaranteed Obligations is rescinded or
otherwise restored by Lender to Borrower or to any other person
who made such payment, or to the creditors or creditors'
representative of Borrower or such other person.
Lender's books and records showing the account between
Lender and Borrower shall be admissible in evidence in any action
or proceeding as prima facie proof of the items therein set
forth, and any written statements rendered by Lender to Borrower,
to the extent to which no written objection is made within sixty
(60) days after the date thereof, shall be considered correct and
be binding on Guarantor as an account stated for purposes of this
Guaranty.
Guarantor covenants with Lender that he shall deliver to
Lender his current personal financial statement in form
acceptable to Lender once each year on or before March 31st with
respect to Guarantor's financial condition as of the end of the
immediately prior calendar year, and after default within ten
(10) days after demand by Lender.
No delay on Lender's part in exercising any rights hereunder
or failure to exercise the same shall constitute a waiver of such
rights. No notice to, or demand on, Guarantor shall be deemed to
be a waiver of the obligation of Guarantor to take further action
without notice or demand as provided herein. No waiver of any of
Lender's rights hereunder, and no modification or amendment of
this Guaranty, shall be deemed to be made by Lender unless the
same shall be in writing, duly signed on Lender's behalf, and
each such waiver, if any, shall apply only with respect to the
specific instance involved and shall in no way impair Lender's
rights or the obligations of Guarantor to Lender in any other
respect at any other time.
This Guaranty is binding upon Guarantor, its successors and
assigns and shall benefit Lender and its successors, endorses,
transferees and assigns. If the undersigned are more than one,
this Guaranty shall be binding jointly and severally upon them
and their respective successors and assigns and the term
"Guarantor" wherever used herein shall mean all the undersigned
and any one or more of them and their successors and assigns.
All references to Borrower and Lender herein shall include their
respective successors and assigns. This instrument shall be
governed by, and construed and interpreted in accordance with,
the laws of the State in which the office of Lender set forth
above is located.
Guarantor waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or
description in any action or proceeding instituted by Lender with
respect to this Guaranty or any matter arising here from or
relating hereto, except compulsory counterclaims.
Guarantor hereby irrevocably submits and consents and to the
nonexclusive jurisdiction of the State and Federal Courts located
in the State in which the office of Lender designated above is
located with respect to any action or proceeding arising out of
this Guaranty or any matter arising here from or relating hereto.
Any such action or proceeding commenced by Guarantor against
Lender will be litigated only in a Federal Court located in the
district, or a State Court in New York, New York or in the State
and County, in which the office of Lender set forth above is
located and Guarantor waives any objection based on forum non-
conveniens and any objection to venue in connection therewith.
In any such action or proceeding, Guarantor waives personal
service of the summons and complaint or other process and papers
therein and agrees that any process or notice of motion or other
application to any of said Courts or a judge thereof, or any
notice in connection with any proceedings hereunder may be served
(i) inside or outside such State by registered or certified
mail, return receipt requested, addressed to Guarantor at the
address set forth below or which Guarantor has previously advised
Lender in writing and as indicated in the records of Lender and
service or notice so served shall be deemed complete five (5)
days after the same shall have been posted or (ii) in such other
manner as may be permissible under the rules of said Courts.
GUARANTOR AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE
OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS GUARANTY, ANY
ALLEGED TORTIOUS CONDUCT BY GUARANTOR OR LENDER, OR, IN ANY WAY,
DIRECTLY OR INDIRECTLY, ARISING OUT OF OR RELATED TO THE
RELATIONSHIP BETWEEN GUARANTOR AND LENDER OR BORROWER AND LENDER.
IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.
IN WITNESS WHEREOF, Guarantor has executed and delivered
this Guaranty as of the day and year first above written.
____________________________________
Daniel Glassman
Address: _________________________
_________________________
<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this 19th day of September, 1997, before me personally
came Daniel Glassman, to me known to be the individual described
in and who executed the foregoing instrument.
Notary Public
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 13, 1997 accompanying the
financial statements of Bradley Pharmaceuticals, Inc. contained
in the Registration Statement. We consent to the use of the
aforementioned report in the Registration Statement and to the use
of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Parsippany, New Jersey
October 14, 1997
